Industry Trend Analysis - New Pharmaceutical Product Portfolio Will Remain Central To Eli Lilly's Revenue Growth - DEC 2017
BMI View: Eli Lilly's Q317 financial results highlight that the firm will continue to derive its growth from a broad portfolio of innovative pharmaceutical products. A range of new pharmaceutical products, spanning several therapeutic areas will drive the firm ' s revenue growth and will improve the long-term outlook for investors. Moreover, to maximise future value, the drugmaker will consider acquisition or organic growth of its Elanco animal health business.
Eli Lilly registered an increase in revenues of 9.0% y-o-y (year-on-year) to USD5.6bn in its Q317 financial results, beating analyst expectations by USD140mn. This was driven primarily by volume growth from Trulicity (dulaglutide), Taltz (ixekizumab) and other new pharmaceutical products, including Basaglar (insulin glargine injection), Jardiance (empagliflozin), Lartruvo (olaratumab), Cyramza (ramucirumab), Olumiant (baricitinib) and Portrazza (necitumumab). A 3% y-o-y increase in R&D and marketing, selling and administrative expenses was primarily due to a USD50mn milestone payment related to AZD3293 (lanabecestat), as part of the company's collaboration with AstraZeneca.
In Q317, net income decreased by 29% y-o-y to USD0.5bn, and earnings per share (EPS) decreased by 27% y-o-y to USD0.53; these were driven primarily by lower operating income due to asset impairment and restructuring. Eli Lilly's full-year guidance for 2017 has been revised since the Q217 earnings call in July 2017. The EPS for 2017 has been lowered from USD2.5-2.6 (Q217) to be in the range of USD1.7-1.8, reflecting charges associated with recently announced streamlining initiatives. However, the firm's full-year revenue guidance has been upgraded from USD22.0-22.5bn in Q217 to USD22.4-22.7 in Q317, highlighting the anticipated acceleration of sales growth from the firm's mixture of established and new products.
|An Increase In Net Sales|
|Eli Lilly Financial Snapshot (USDmn)|
|Source: Eli Lilly, BMI|
New Pharmaceutical Products To Underpin Growth Outlook
Revenues in Q317 were boosted by volume growth from the firm's pharmaceutical business which grew by 10%. This growth was driven primarily by Eli Lilly's new products portfolio, treating a range of diseases including diabetes, plaque psoriasis and cancer. The new products portfolio contributed to 13.7% y-o-y volume growth, offsetting the decreased volumes from a few products that have recently lost patent exclusivity such as Cymbalta (duloxetine hydrochloride), Effient (prasugrel), Zyprexa (olanzapine) and Strattera (atomoxetine hydrochloride).
In the earnings release call, David Ricks, Eli Lilly's chairman, president and CEO, stated, 'Lilly's focus on our key priorities led to strong performance in the third quarter, highlighted by revenue growth from our new pharmaceutical products. Including Verzenio (abemaciclib), we have now launched nine medicines since 2014, and we are on a path to launch eleven more by 2023.' Additionally, the revenue growth was driven by a 7% increase due to volume and a 2% increase due to higher realised prices, partially offset by a decrease due to the unfavourable impact of foreign exchange rates on international inventories. The worldwide revenue from the company's diabetes products also grew by 39%.
In the third quarter of 2017, worldwide animal health revenue totalled USD740.6mn, an increase of 5% compared with the third quarter of 2016, driven by inclusion of revenues from the acquisition of Novartis Animal Health and Boehringer Ingelheim Vetmedica's feline, canine and rabies vaccines portfolio. Eli Lilly's Elanco Animal Health business has developed into a premier animal health company, and has been an important growth driver and source of revenue diversification for the company. During the earnings release call, the company announced that in order to maximise future value, it will review strategic alternatives for its animal health business, including an initial public offering, merger, sale, or retention of the business, and will provide an update on this in the middle of 2018.
Eli Lilly's revenues continue to be dominated by the US market, accounting for approximately 49% of total revenues in Q317. This US-centricity has been exacerbated by stronger performance compared to other international markets. The US pharmaceutical business grew by 9% y-o-y to USD3.1bn, driven by both price and volume. Price growth was primarily driven by the late life cycle products, such as Cialis (tadalafil) and Forteo (teriparatide of recombinant DNA origin injection) while Trulicity was the main driver of US volume growth, with contributions also coming from Taltz, Basaglar, Jardiance, Lartruvo as well as animal health products.
As a pharmaceutical firm principally focussed on innovative medicines, the firm's exposure to emerging markets is limited. Revenue outside the US increased by 8% y-o-y to USD2.5bn, due to increased volume for several new pharmaceutical products, primarily driven by uptake of Trulicity and Cyramza in Japan and Europe, partially offset by the loss of exclusivity of Zyprexa in Japan and Cymbalta in Canada and Europe, as well as increased competition, lower realised prices and loss of exclusivity for Alimta (pemetrexed) in several countries.
Share Price Performance
Eli Lilly's share price closed at USD110.5 on October 26 2017, down 0.38% from the closing price of USD110.9 on October 25 2017. Over the previous 12-month period, Eli Lilly's share price (+10.54%) has underperformed relative to the Index (S&P 500 Index: +19.52%). The share price has rallied on account of promising revenues for its new pharmaceutical products.
|Eli Lilly: Underperforming|
|The Relative Share Price of Eli Lilly And The S&P 500 Index|
|Source: Bloomberg, Eli Lilly|
Eli Lilly announced its plans to invest USD72mn in an insulin manufacturing project at one of its Indianapolis facilities. The investment will be used to replace an existing insulin vial filling line and allow the company to meet the growing demand for its insulin products, including Humalog (insulin lispro) and Humulin (human insulin).
Eli Lilly and CureVac AG announced a global immuno-oncology collaboration focused on the development and commercialisation of up to five potential cancer vaccine products based on CureVac's proprietary RNActive technology.
The US Food and Drug Administration (FDA) granted priority review designation for Eli Lilly's new drug application for Verzenio, a cyclin-dependent kinase 4 & 6 inhibitor for patients with advanced breast cancer.
Eli Lilly delivered a shipment of commercial medicines, including more than 36,000 vials and pens of insulin to Puerto Rico, in order to help re-stock operational pharmacies.
Eli Lilly announced actions to streamline its operations to more efficiently focus resources on developing new medicines and to improve its cost structure. Global workforce reductions, are expected to impact around 3,500 positions.
After discussions with the FDA in late August, Eli Lilly will resubmit the NDA for baricitinib, a treatment for atopic dermatitis, before the end of January 2018. The resubmission package will include new safety and efficacy data.