Why Is Lilly (LLY) Up 4.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Eli Lilly (LLY). Shares have added about 4.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lilly due for a pullback? 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 drivers.
Q1 Earnings Top, Sales In Line, 2024 View Raised
Lilly reported first-quarter 2024 adjusted earnings per share (“EPS”) of $2.58, which beat the Zacks Consensus Estimate of $2.53 per share. Earnings rose 59% year over year.
Revenues of $8.77 billion rose 26% year over year. Total revenues were in line with the Zacks Consensus Estimate.
Strong demand for Mounjaro, Zepbound, Verzenio and Jardiance pulled the top line in the quarter which was offset by lower Trulicity sales.
Continued supply constraints for incretin-based products like Trulicity, Mounjaro and Zepbound hurt sales. Demand for tirzepatide drugs was exceptionally strong. Demand exceeded supply despite the company increasing production volumes. Lilly expects the supply issues to continue in the near to mid-term as demand exceeds supply.
Quarter in Detail
In the reported quarter, net realized prices rose 10%, while volumes rose 16%.
Key growth products (select products launched prior to 2022 like Cyramza, Emgality, Jardiance, Olumiant, Retevmo, Taltz, Trulicity, Tyvyt and Verzenio) grew 2% to $4.66 billion. Eli Lilly’s new products (products launched since 2022 like Ebglyss, Jaypirca, Mounjaro, Omvoh and Zepbound) contributed $2.39 billion to revenues, led by Mounjaro and Zepbound.
While U.S. revenues rose 28% to $5.69 billion, ex-U.S. revenues increased 22% to $3.07 billion.
Mounjaro recorded sales of $1.81 billion during the quarter, lower than $2.21 billion in the previous quarter. Sequential growth was hurt by a one-time benefit recorded in the fourth quarter of 2023 from changes in estimates for rebates and discounts. Mounjaro sales missed the Zacks Consensus Estimate of $1.94 billion as well as our model estimate of $1.86 billion.
Mounjaro sales benefited from increased demand and higher realized prices due to decreased utilization of savings card programs. However, supply constraints, given significant demand, hurt sales. From the second half of 2024, Lilly expects typical pricing headwinds for Mounjaro like for all diabetes medicines as savings card dynamics should cease to have a notable effect on realized price comparisons to base periods.
In the quarter, Lilly gained approval for a four-dose Kwik Pen delivery device for Mounjaro in the EU.
Zepbound, which was launched in November 2023, recorded sales of $517.4 million in the quarter compared with $175.8 million in the fourth quarter
New drug Jaypirca recorded $50.0 million in sales compared with $32.8 million in the previous quarter driven by approval for the CLL indication received in December 2023. New drugs Omvoh and Ebglyss recorded sales of $9.4 million and $3.1 million, respectively, in the quarter.
Among the growth products, Trulicity generated revenues worth $1.46 billion, down 26% year over year. Sales declined 30% in the United States due to lower volumes and increased competition. Volumes were low in the United States as the company faced intermittent delays in fulfilling orders of Trulicity. In international markets, sales declined 13% due to decreased volumes and lower realized prices. Volumes in international markets continued to be affected by the company’s measures to manage strong demand amid tight supply. Sales of Trulicity missed the Zacks Consensus Estimate of $1.57 billion as well as our model estimate of $1.59 billion.
Jardiance sales surged 19% to $686.5 million, driven by increased demand trends. Jardiance missed the Zacks Consensus Estimate of $701.0 million but beat our model estimate of $670.7 million.
Taltz brought in sales of $604.1 million, up 15% year over year, driven by increased demand in the United States and outside. Taltz missed the Zacks Consensus Estimate of $613.0 million but beat our model estimate of $587.8 million.
Verzenio generated sales of $1.05 billion in the reported quarter, up 40% year over year, on increased demand, driven by the launch of the early breast cancer indication. Verzenio sales missed the Zacks Consensus Estimate of $1.11 billion as well as our model estimate of $1.25 billion.
Emgality generated revenues of $225.7 million in the quarter, up 46% year over year. Olumiant (baricitinib) generated sales of $217.4 million, down 5% on a year-over-year basis. Retevmo generated sales of $69.2 million, up 35% year over year.
Cyramza revenues of $229.9 million declined 3% year over year.
Among the established products, Alimta sales rose 19% to $69.5 million. Humalog sales rose 17% to $538.7 million.
Gross Margin & Operating Income
Adjusted gross margin was 82.5%, up 4.1 percentage points year over year, driven by higher realized prices, favorable product mix and improved production costs.
Operating income rose 63% year over year to $2.65 billion. In the quarter, Lilly recognized acquired in-process research and development (IPR&D) and development milestone charges of 10 cents per share, same as in the year-ago quarter.
Marketing, selling and administrative expenses rose 12% to $1.95 billion to support the launch of new products and indications as well as increased compensation and benefit costs. R&D expense increased 27% to $2.52 billion in the quarter due to higher costs for late-stage as well as early-stage candidates. A one-time charge of $75 million for termination of Verzenio prostate cancer program also led to increased R&D costs in the quarter.
The adjusted effective tax rate was 11.9% compared with 12.8% in the year-ago quarter.
2024 Guidance
The company raised its previously issued sales and earnings guidance for 2024 despite the expectation of continued supply constraints for incretin-based products like Zepbound and Mounjaro. Lilly is investing in new advanced manufacturing plants and lines in the United States and Europe to increase supply. Lilly expects meaningful increases in shipment volumes of incretin-based products from the second half of 2024. Lilly expects the production of sellable doses of incretin products in the second half of 2024 to be at least 1.5 times the sellable doses in the second half of 2023.
Greater visibility and confidence in its production expansion plans and strong demand for Mounjaro and Zepbound pushed Lilly to raise its sales and earnings guidance ranges for 2024 despite mixed first-quarter performance.
Lilly raised its revenue guidance range by $2 billion to $42.4 to $43.6 billion from the prior expectation of $40.4 to $41.6 billion. Lilly expects better revenue growth in the second half as the supply of incretin medicines continues to improve.
The earnings per share guidance was raised by $1.30 per share (at the midpoint) from a range of $12.20 to $12.70 to $13.50 to $14.00 per share.
From the fourth quarter of 2023, Lilly began providing guidance for a new ratio (Gross Margin - OPEX) / Revenue), which represents margin after subtracting R&D costs and marketing and administrative costs from gross margin and dividing that figure by revenue. This ratio is expected to be in the range of 33% to 35% in 2024 compared to 31% to 33% previously.
Adjusted other income (expense) is expected to be in the range of $400 to $500 million (maintained). The adjusted tax rate is expected to be approximately 14% (maintained).
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, Lilly has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lilly belongs to the Zacks Large Cap Pharmaceuticals industry. Another stock from the same industry, Novartis (NVS), has gained 1.9% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
Novartis reported revenues of $11.83 billion in the last reported quarter, representing a year-over-year change of -8.7%. EPS of $1.80 for the same period compares with $1.71 a year ago.
For the current quarter, Novartis is expected to post earnings of $1.85 per share, indicating a change of +1.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
Novartis has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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