Why is Lilly (LLY) up 4.5% since its last earnings report?

It’s been a month since Eli Lilly’s (LLY) last earnings report. Shares rose about 4.5% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lilly facing 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 key drivers.

Top first quarter earnings, sales in line with expectations, growth in 2024

Lilly reported first-quarter 2024 adjusted earnings per share (“EPS”) of $2.58, beating the Zacks Consensus Estimate of $2.53 per share. Profits increased 59% year over year.

Revenues of $8.77 billion increased 26% year-over-year. Total revenues were in line with the Zacks Consensus Estimate.

Strong demand for Mounjaro, Zepbound, Verzenio and Jardiance products peaked this quarter, offset by lower Trulicity sales.

Continued supply constraints on incretin-based products such as Trulicity, Mounjaro and Zepbound are negatively impacting sales. Demand for tirzepatide drugs was exceptionally high. Demand outstripped supply even as the company increased production volumes. Lilly expects supply issues to persist in the near and medium term as demand outstrips supply.

Quarter in detail

In the reported quarter, net realized prices increased by 10% and volumes by 16%.

Key product development (selected products launched before 2022 such as Cyramza, Emgality, Jardiance, Olumiant, Retevmo, Taltz, Trulicity, Tyvyt and Verzenio) increased 2% to $4.66 billion. Eli Lilly’s new products (products launched in 2022 including Ebglyss, Jaypirca, Mounjaro, Omvoh and Zepbound) contributed $2.39 billion in revenue, led by Mounjaro and Zepbound.

While U.S. revenues increased 28% to $5.69 billion, non-U.S. revenues increased 22% to $3.07 billion.

Mounjaro reported sales of $1.81 billion for the quarter, down from $2.21 billion in the previous quarter. The sequential increase was influenced by a one-off benefit recorded in the fourth quarter of 2023 resulting from a change in estimates of rebates and discounts. Mounjaro’s sales missed the Zacks Consensus Estimate of $1.94 billion and our model estimate of $1.86 billion.

Mounjaro sales benefited from increased demand and higher realized prices due to reduced use of savings card programs. However, supply constraints are hurting sales given the strong demand. Beginning in the second half of 2024, Lilly expects typical pricing issues for Mounjaro, as with all diabetes medications, as savings card dynamics should no longer have a noticeable impact on baseline price comparisons.

This quarter, Lilly gained approval for the four-dose Kwik Pen dispenser for Mounjaro in the EU.

Zepbound, which launched in November 2023, reported sales of $517.4 million in the quarter compared to $175.8 million in the fourth quarter

Jaypirca new drug sales were $50.0 million compared to $32.8 million in the prior quarter, driven by approval for the CLL indication received in December 2023. New drug Omvoh and Ebglyss recorded sales of $9.4 million, respectively, in the quarter USD and USD 3.1 million.

Among growth products, Trulicity generated revenue of $1.46 billion, down 26% year-over-year. Sales in the United States fell 30% due to lower volumes and increased competition. Volumes were low in the United States as the company faced intermittent delays in fulfilling Trulicity orders. In international markets, sales decreased by 13% due to reduced volumes and lower realized prices. Sales volumes in international markets continued to be impacted by the company’s efforts to manage strong demand in an environment of limited supply. Trulicity’s sales missed the Zacks Consensus Estimate of $1.57 billion and our model estimate of $1.59 billion.

Jardiance sales increased 19% to $686.5 million, driven by higher demand trends. Jardiance missed the Zacks Consensus Estimate of $701.0 million, but beat our model’s estimate of $670.7 million.

Taltz achieved sales of $604.1 million, up 15% year-over-year, driven by increased demand in the United States and beyond. 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, driven by increased demand resulting from the introduction of an early indication for the treatment of breast cancer. Verzenio’s sales missed the Zacks Consensus Estimate of $1.11 billion and our model estimate of $1.25 billion.

Emgality generated revenue of $225.7 million in the quarter, up 46% year-over-year. Olumiant (baricitinib) generated sales of $217.4 million, down 5% year over year. Retevmo generated sales of $69.2 million, up 35% year-over-year.

Cyramza’s revenue of $229.9 million declined 3% year-over-year.

Among established products, Alimta’s sales increased 19% to $69.5 million. Humalog sales increased 17% to $538.7 million.

The story continues

Gross margin and 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 manufacturing costs.

Operating income increased 63% year over year to $2.65 billion. During the quarter, Lilly recognized acquired in-progress research and development (IPR&D) and milestone fees of 10 cents per share, the same as in the year-ago quarter.

Marketing, sales and administrative expenses increased 12% to $1.95 billion to support new product introductions and indications, as well as increased compensation and benefits costs. Research and development expenses increased 27% to $2.52 billion in the quarter due to higher costs for early- and late-stage candidates. A one-time $75 million termination charge for Verzenio’s prostate cancer treatment program also led to an increase in research and development costs during the quarter.

The adjusted effective tax rate was 11.9% compared to 12.8% in the same quarter last year.

Guidelines 2024

The company raised its previously published 2024 sales and earnings guidance despite expected continued supply constraints for incretin-based products such as Zepbound and Mounjaro. Lilly is investing in new advanced plants and production lines in the United States and Europe to increase supply. Lilly expects a significant increase in shipment volume of incretin-based products from the second half of 2024. Lilly expects production of doses of incretin products sold in the second half of 2024 to be at least 1.5 times greater than doses sold in the second half of 2023. .

Greater visibility and certainty around production expansion plans and strong demand for Mounjaro and Zepbound forced Lilly to raise its 2024 sales and earnings forecasts despite mixed first-quarter results.

Lilly raised its revenue guidance by $2 billion, to $42.4 billion to $43.6 billion, from earlier expectations of $40.4 billion to $41.6 billion. Lilly expects better revenue growth in the second half of the year as the supply of incretin drugs continues to increase.

Earnings per share guidance was raised by $1.30 per share (midpoint) from a range of $12.20-12.70, $13.50-14.00 per share.

Beginning in the fourth quarter of 2023, Lilly began providing guidance on a new ratio (gross margin (OPEX) / revenue), which represents margin after subtracting research and development and marketing and administrative costs from gross margin and dividing that amount by revenue. In 2024, the rate is expected to be 33% to 35%, up from 31% to 33% previously.

Adjusted other income (expenses) is expected to be in the range of $400 million to $500 million (unchanged). The adjusted tax rate is expected to be approximately 14% (maintained).

How have estimates changed since then?

It turns out that estimate revisions have been trending downward over the past month.

VGM results

At this point, Lilly has a solid Growth Score of B, although well behind its Momentum Score of D. Following the exact same trajectory, the stock was rated a D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Lilly carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Lilly belongs to the Zacks Large Cap Pharmaceuticals industry. Another stock in the same industry, Novartis (NVS), has gained 1.9% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Novartis reported revenues of $11.83 billion, representing a year-over-year change of -8.7%. EPS of $1.80 in the same period compared to $1.71 a year ago.

For the current quarter, Novartis is expected to report earnings per share of $1.85, representing a +1.1% change from the prior-year quarter. The Zacks Consensus Estimate has changed -0.2% over the past 30 days.

Novartis carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of C.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Eli Lilly and Company (LLY): Free Stock Analysis Report

Novartis AG (NVS): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research