Eli Lilly Remains Well Positioned for Industry-Leading Growth, Buoyed by Cardiometabolic Drugs

Sector Director

Damien Conover

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Diabetes

Oncology

Immunology

Neuroscience

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Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects have improved as the company is launching several new blockbusters and patent losses are fading.

Lilly's internal pipeline is well positioned to mitigate the patent losses during the next decade. The company tends to spend a low- to mid-20s percentage of its sales on financing the development efforts of new drugs, much higher than the high-teens industry average. The robust pipeline is a result of Lilly's strong commitment to research. We believe cardiometabolic drugs Mounjaro, Trulicity, and Jardiance and immunology drug Taltz along with cancer drug Verzenio hold the highest sales potential of Lilly's currently launched drugs. Further, pipeline drugs lebrikizumab (atopic dermatitis), mirikizumab (immunology), and donanemab (Alzheimer's) hold major blockbuster potential. 

Lilly's strong entrenchment in insulin production should also help the company deal with patent losses. Unlike traditional drugs, Lilly's insulin drugs are very hard to copy by generics and create barriers to entry for noninsulin producers because of the large up-front investments needed to create scale efficiencies. A new weekly insulin in late-stage development offers another avenue of growth in this mature market.

The company is taking a hard look at its bottom line. Through a combination of cost savings and expected top-line growth, Lilly aims to expand operating margins over the next several years, which we believe is achievable. Lilly expects to increase gross margins through productivity initiatives and greater capacity utilization. Overall, we view the strong traction of recently launched high-margin drugs in several indications as supporting the overall profitability gains.

Business Strategy & Outlook

Patents, economies of scale, and a powerful distribution network support Eli Lilly’s wide moat. Lilly's patent-protected drugs carry strong pricing power, which enables the firm to generate returns on invested capital in excess of its cost of capital. Further, the patents give the company time to develop the next generation of drugs before generic competition arises. Lilly’s diversified product portfolio means the company’s top drugs represent only a moderate amount of total sales, with the largest drug, Trulicity, representing almost 20% of total sales, which sets up manageable cash flow declines as new products mitigate the generic competition. Also, Lilly’s operating structure allows for cost-cutting after patent losses to reduce the margin pressure from lost high-margin drug sales. Overall, Lilly's established product line creates the enormous cash flows needed to fund the average $800 million in development costs per new drug. In addition, the company's powerful distribution network sets up the company as a strong partner for smaller drug companies that lack Lilly's resources. Lilly's entrenched insulin franchise creates an added layer of competitive advantage, as interchangeable insulin competition seems many years away due to the complexity of gaining generic approval for insulin and the high cost to build the needed economy of scale for insulin production. Also, Lilly's recently launched biologic drugs create higher hurdles over traditional small molecule for biosimilars to gain market share following the eventual patent expirations.

We think the firm does face environmental, social, and governance risks, particularly related to potential U.S. drug price-related policy reform (close to 60% of total sales are generated by prescription drugs sales in the U.S.) to increase access by lowering drug prices. Ongoing product governance issues (including litigation related to side effects and patents) also weigh on the company. While we have factored these threats into our analysis, we don't see them as material to our moat rating for Eli Lilly.

Wide

Economic Moat

Eli Lilly

Cialis, ia a competitor to Pfizer's blockbuster Viagra for erectile dysfunction. Cialis maintains an active period of 36 hours.

Cialis

Cymbalta is a serotonin-norepinephrine reuptake inhibitor used predominantly in the treatment of major depressive disorders and generalized anxiety disorder, ranks with Prozac as one of the most financially successful pharmaceuticals in industry history. It is also used in the treatment of fibromyalgia, neuropathy, chronic pain and osteoarthritis.

Cymbalta

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Gemzar

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Methadone

Prozac was one of the first therapies in its class to treat clinical depression by blocking the uptake of serotonin within the human brain. It is prescribed to more than fifty-four million people worldwide.

Prozac

Eli Lilly & Co. engages in the discovery, development, manufacture, and sale of pharmaceutical products. The firm's products consist of diabetes, oncology, immunology, neuroscience, and other products and therapies. The company was founded by Eli Lilly in May 1876 and is headquartered in Indianapolis, IN.

Earnings data Q3 2023

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Eli Lilly and Company reported a superb Q2, triggering a sharp price rally and pushing its valuation to a very concerning level in my view. There are certainly plenty to be optimistic about, ranging from the volume growth of its current drugs and also the positive results on its pipeline drugs. However, I will argue that the valuation risks outweigh the positives under current conditions.

Eli Lilly Q2: Dividends Don't Lie

INDIANAPOLIS , Aug. 14, 2023 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced the successful completion of its acquisition of Versanis Bio. The acquisition expands Lilly's portfolio to include Versanis' lead asset, bimagrumab, which is currently being assessed in a Phase 2b study alone and in combination with semaglutide in adults living with overweight or obesity.

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INDIANAPOLIS , Aug. 14, 2023 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced the successful completion of its acquisition of Sigilon Therapeutics, Inc. (NASDAQ: SGTX). The acquisition allows Lilly to continue researching and developing encapsulated cell therapies, including SIG-002, for the treatment of type 1 diabetes.

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Second-quarter earnings beat ratio of 86.6% and revenue beat ratio of 84.9% for the healthcare sector are impressive.

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Diabetes therapy Mounjaro paced the company's revenue growth. Lilly raised full-year guidance for revenue and earnings per share.

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The stock has been on a strong run for the last few years, primarily due to its pipeline potential.

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PRESS RELEASE: 10 August 2023 , 07:00 CEST Biocartis Partners w ith Lilly t o Explore Biomarker Testing f or NSCLC Patients u sing t he Idylla ™ Platform Mechelen, Belgium, 2023 - Biocartis Group NV (the ‘Company' or ‘Biocartis'), a global innovative molecular diagnostics company (Euronext Brussels: BCART) today announced that they have entered into a new post-commercial collaboration program with Lilly, a global pharmaceutical company. This program will explore the advantages of adding the Biocartis IdyllaTM Platform to a molecular diagnostics workflow in global clinical labs via a study in hospitals across Spain.

Press Release Biocartis Group NV: Biocartis Partners with Lilly to Explore Biomarker Testing for NSCLC Patients using the Idylla™ Platform

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Eli Lilly & Co (NYSE: LLY) has already gained 45% year-to-date but a Jefferies analyst is convinced that the stock is not out of juice just yet.

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INDIANAPOLIS , Aug. 9, 2023 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced the successful completion of its acquisition of DICE Therapeutics, Inc. (NASDAQ: DICE). The acquisition expands Lilly's immunology portfolio to include DICE's novel oral therapeutic candidates, including oral IL-17 inhibitors currently in clinical development, to treat chronic diseases in immunology.

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Eli Lilly and Co (NYSE:LLY ) Q2 2023 Earnings Conference Call August 8, 2023 9:00 AM ET Company Participants Joe Fletcher - VP, IR David Ricks - Chairman, CEO & President Anat Ashkenazi - EVP & CFO Daniel Skovronsky - EVP, Chief Scientific & Medical Officer and President Anne White - EVP & President, Lilly Neuroscience Lilly Research Laboratories Jake Van Naarden - EVP, CEO, Loxo Oncology & President, Lilly Oncology Patrik Jonsson - EVP, Chief Customer Officer, President, Lilly USA & Lilly Immunology Michael Mason - EVP & President of Lilly Diabetes Conference Call Participants Louise Chen - Cantor Fitzgerald & Co. Geoff Meacham - Bank of America Merrill Lynch Timothy Anderson - Wolfe Research Robyn Karnauskas - Truist Securities Stephen Scala - TD Cowen Umer Raffat - Evercore ISI Carter Gould - Barclays Bank Kerry Holford - Berenberg Terence Flynn - Morgan Stanley Colin Bristow - UBS Christopher Schott - JPMorgan Chase & Co. David Risinger - Leerink Partners Chris Shibutani - Goldman Sachs Group Trung Huynh - Crédit Suisse Mohit Bansal - Wells Fargo Securities Andrew Baum - Citigroup Evan Seigerman - BMO Capital Markets Operator Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q2 2023 Earnings Call. [Operator Instructions].

Eli Lilly and Co (LLY) Q2 2023 Earnings Call Transcript

Pharmaceutical giant Eli Lilly (NYSE: LLY ) delighted investors with an impressive earnings performance, sending LLY stock to a new all-time high. In particular, the company's diabetes treatment Mounjaro commanded significant demand, contributing to upgraded guidance.

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Shares of Eli Lilly and Novo Nordisk both soared to record highs on Tuesday, as sales increased of Eli Lilly's Mounjaro and as Novo Nordisk reports a promising clinical trial of its drug Wegovy.

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