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It has been about a month since the last earnings report for Eli Lilly (LLY). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lilly due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Q2 Earnings Miss, Sales Beat
Lilly reported second-quarter 2021 adjusted earnings per share of $1.87, which missed the Zacks Consensus Estimate of $1.89. Earnings however rose 29% year over year driven by higher operating profits.
Revenues of $6.74 billion beat the Zacks Consensus Estimate of $6.57 billion. Sales increased 23% year over year as volume increases and currency tailwinds offset the impact of lower realized prices of several of its drugs.
The second quarter of 2021 faced easier comparisons from the year-ago quarter as the reversal of $250 million COVID-related stocking benefit from the first quarter as well as business disruption from COVID-19 had hurt revenues in the second quarter of 2020. Second-quarter 2021 revenues also benefited from $170.0 million of revenues associated with the sale of Lilly’s rights to Cialis in China.
Sales improved sequentially from the first quarter, which suggests a recovery from the impact of the pandemic as revenues from all key products grew in the quarter. However, lower revenues from Lilly’s COVID-19 antibody sales due to weak demand hurt sales in the quarter.
New-to-brand scripts in most of Lilly’s therapeutic areas were tracking above pre-COVID baseline in the United States in the second quarter.
Quarter in Detail
Lower realized prices had a negative impact of 2% on sales. Volumes rose 22%. Foreign exchange had a positive impact of 3% on revenue growth in the quarter.
Key growth products (products launched since 2014) drove 17% of revenue growth and represented nearly 54% total revenues, excluding revenues from COVID-19 antibodies. U.S. revenues climbed 18% to $3.70 billion while ex-U.S. revenues increased 29% to $3.04 billion.
Among the growth products, Trulicity generated revenues worth $1.54 billion, up 25% year over year driven by higher volumes, which offset decline in prices. The lower realized prices were a result of higher contracted rebates, partially offset by modest list price increases.
Cyramza revenues of $268.7 million were up 5% year over year driven by increased volumes in both within and outside United States.
Jardiance sales rose 36% to $356.5 million driven by increased demand trends within the SGLT2 class of diabetes medicines in the United States and increased volume outside the United States.
Basaglar recorded revenues of $210.7 million, down 27% year over year due to lower realized prices and weak demand caused by competitive pressure in the United States. Basaglar sales also rose in international markets driven by increased volume.
Taltz brought in sales of $569.1 million, up 44% year over year as U.S. sales benefited from increased demand, which offset the impact of lower realized prices driven by increased rebates to gain broad commercial access. Taltz revenues also benefited from a favorable change to prior estimates for rebates and discounts, and COVID-19 related inventory destocking last year. Ex-U.S. sales rose driven by increased volume.
Olumiant generated sales of $208.4 million in the quarter, up 44% year over year backed by increased volume and currency tailwinds in international markets.
Verzenio generated sales of $341.3 million in the reported quarter, up 64% year over year, driven by increased demand and to some extent, higher realized prices.
Emgality generated revenues of $156.3 million in the quarter, up 79% year over year driven by increased demand and higher realized prices in the United States.
Tyvyt revenues in China were $105.0 million, up 64% year over year. Lilly markets Tyvyt in partnership with Innovent.
Among the newer drugs, Retevmo generated sales of $25.7 million in the quarter compared with $16.8 million in the previous quarter.
Among the established products, Forteo sales declined 14% to $218.4 million. Humalog sales rose 9% to $607.6 million. Humulin sales rose 1% to $315.3 million. Alimta sales rose 13% to $610.6 million.
Lilly generated revenues of $148.9 million from its COVID-19 therapies, bamlanivimab and bamlanivimab/etesevimab cocktail medicine in the quarter, much lower than $810.1 million recorded in the previous quarter, due to competition from superior therapies and lower demand amid rising vaccinations.
Gross Margin & Operating Income
Adjusted gross margin was 79.3% in the quarter, down 30 basis points primarily due to unfavorable product mix driven by COVID-19 antibodies sales and unfavorable effect of foreign exchange rates on international inventories sold.
Operating income rose 29% year over year to $1.98 billion. Operating margin was 29.4% in the quarter, up 140 bps year over year, as higher gross margins were partially offset by higher operating costs. Operating expenses rose 18% in the quarter.
Marketing, selling and administrative expenses rose 16%. R&D expense rose 20% in the quarter due to higher costs for late-stage pipeline candidates. R&D costs included expenses of $85 million to develop COVID-19 therapies.
Adjusted effective tax rate was 14.4%, higher than 10.9% in the year-ago quarter.
Lilly tightened its previously issued sales forecast for 2021 due to lower-than-expected demand for its COVID-19 antibody medicines. The company maintained its earnings guidance range for 2021.
Lilly expects adjusted earnings in the range of $7.80-$8.00 per share in 2021, which indicates growth in the range of 15.
Revenues in 2021 are expected in the range of $26.8 billion-$27.4 billion, compared with $26.6 billion-$27.6 billion expected previously. Increase in full-year revenue expectation for core drugs by $200 million and currency tailwinds are expected to be offset by lower revenues from COVID-19 therapies.
Lilly expects revenues in the range of $1.0-$1.1 billion from COVID-19 therapies compared with the prior range of $1.0-$1.5 billion.
Gross margin is expected to be approximately 79% (maintained). Adjusted tax rate is expected to be approximately 13% (maintained). Adjusted operating margin is expected to be 30%, lower than the previous expectation of 31% due to lower COVID-19 antibody revenues.
Marketing, selling and administrative expense are expected to be in the range of $6.2 billion to $6.4 billion (maintained). Research and development expense is expected to be in the range of $6.9 billion to $7.1 billion (maintained). The company expects to meet the higher end of this guidance range for R&D and SG&A expenses.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
Currently, Lilly has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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