Lilly's Stock Up on Upbeat Sales & Profit Outlook for 2020

Eli Lilly & Company LLY issued a better-than-expected financial guidance for 2020, which pushed its shares up 2% on Tuesday. The drug giant, meanwhile, re-affirmed the previously issued 2019 sales and earnings projections.

Year to date, Lilly’s shares have risen 8.3% compared with the industry’s increase of 9.9%.

 

 

2020 Guidance

Lilly expects adjusted earnings in the range of $6.70-$6.80 per share in 2020. The current Zacks Consensus Estimate for earnings is pegged lower at $6.58 per share. Revenues in 2020 are expected in the range of $23.6-$24.1 billion. The Zacks Consensus Estimate for sales stands at $23.76 billion.

It expects new products to help it achieve the sales growth target as the headwind from Cialis LOE and Lartruvo will abate in 2020.Lilly lost exclusivity for key erectile dysfunction drug, Cialis in 2019, which has been hurting its top line. Also, Lartruvo’s product withdrawal was a key top-line headwind in 2019. Lilly suspended promotion of its advanced soft tissue sarcoma drug, Lartruvo due to the failure of the ANNOUNCE confirmatory study in 2019.

The company said that if it achieves this sales range for 2020, it will be able to exceed its 7% revenue CAGR target for the 2015-2020 period. The growth rate also exceeds Lilly’s initial guidance of 6% growth in 2020, which it communicated in October.

Lilly expects its revenue growth to be driven by higher demand for its growth products  including Trulicity, Jardiance, Taltz, Verzenio, Basaglar, Cyramza Emgality as well as newly launched glucagon nasal powder, Baqsimi and potential launch of newly approved oral tablets to treat acute migraine, Reyvow.

However, generic competition for several drugs including the expected generic entry for Forteo, rising pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, and price cuts in some international markets like China, Japan and Europe are some top-line headwinds expected in 2020. In the United States, prices are expected to decline in a low-single digit range.

Gross margin is still expected to be approximately 81%. Adjusted tax rate is expected to be approximately 15%. Adjusted operating margin is expected to be 31% in 2020, same as that provided in October.

Marketing, selling and administrative expense are expected to be in the range of $6.1billion to $6.3billion. Research and development expense is still expected to be in the range of $5.6billion to $5.9billion.

Importantly, in the year, Lilly is likely to come up with important data readouts for several key pipeline medicines. Lilly also expects approvals for two new drugs in 2020 and up to three new launches. Please note that regulatory applications for Lilly’s key pipeline candidate, an ultra-rapid acting insulin for type I and II diabetes, is under review in the United States as well as Europe. A new drug application (NDA) has already been filed for Alzheimer’s disease candidate, flortaucipir. NDAs for tanezumab for osteoarthritis pain (in partnership with Pfizer [PFE]) and oral RET inhibitor, selpercatinib for RET-altered thyroid cancers are expected to be filed in the next 3-4 months.

2019 Guidance Reaffirmed

Lilly maintained the previously issued 2019 adjusted earnings and sales outlook. Lilly expects full-year earnings in the range of $5.75 to $5.85. The range indicates growth of 4% to 6% from the year-ago levels.

The revenue guidance was maintained in the range of $22.0-$22.5 billion, which indicates 5% growth, at mid-point, over 2018 level on a constant currency basis.

Gross margin is still expected to be approximately 80%. Adjusted tax rate is expected to be in the range of 12%-13%. Marketing, selling and administrative expense is expected to be in the range of $5.9 billion to $6.1 billion. Research and development expense is still expected to be in the range of $5.5 billion to $5.7 billion.

Lilly currently carries a Zacks Rank #3 (Hold). Some better-ranked large-cap pharma stocks are Bristol-Myers BMY and Merck MRK, both with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bristol-Myers’ earnings estimates have increased 4.4% and 11.6%, respectively, for 2019 and 2020 over the past 60 days. The stock is up 23.4% this year so far.

Merck’s stock is up 16.5% this year so far. Its earnings estimates have risen 5.1% for 2019 and 2.6% for 2020 over the past 60 days.

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