Eli Lilly Fundamental Analysis
Eli Lilly Fundamental Analysis: A Closer Look
Indianapolis, Indiana is home to Eli Lilly and Company, one of the world’s largest pharmaceutical giants. This industry acts as a driver, enabler, and tech progress indicator. With a diverse product profile featuring a robust lineup of successful new drugs, Eli Lilly remains resilient despite challenges like patent expirations and price pressures in the U.S. diabetic franchise.
Eli Lilly’s pharmaceutical product categories span neuroscience (think Cymbalta and Emgality), diabetes (Humalog, Humulin, Trulicity, and more), oncology (Alimta, Cyramza, Verzenio), immunology (highlighting Taltz and Olumiant), and other areas like Cialis.
ACQUISITIONS AND EXPANSION
In recent years, Eli Lilly actively pursued acquisitions and licensing agreements to fortify its product portfolio and pipeline. Notably, the $6.5 billion acquisition of ImClone Systems in November 2008 brought the blockbuster anticancer drug Erbitux under its umbrella. Eli Lilly also made strategic acquisitions, including Hypnion, Inc. (focused on neuroscientific drug discovery for sleep disorders), CoLucid Pharmaceuticals (introducing Reyvow for acute migraines), Loxo Oncology (contributing cancer drugs Retevmo and Jaypirca), Dermira (bolstering the atopic dermatitis candidate lebrikizumab), Akouos (expanding genetic medicine endeavors), and DICE Therapeutics (enhancing the immunology pipeline).
Eli Lilly further solidifies its position with collaborative agreements with various companies, such as Incyte for Olumiant, Boehringer Ingelheim in diabetes, and Innovent Biologics with Tyvyt in China.
Elanco, once part of Eli Lilly, became an independently listed public company, Elanco Animal Health Incorporated, through a minority IPO in 2018. It began trading under ELAN on the NYSE in September. Eli Lilly then completed the sale of its remaining 80.2% stake in Elanco through a “tax-efficient transaction” in March 2019.
In 2022, Eli Lilly’s revenues saw a 1% increase, reaching $28.5 billion. Notable contributors included Trulicity (26% of revenues), Verzenio and Taltz (each about 8.7%), and Jardiance and Humalog (each 7.2%). Furthermore, Eli Lilly’s COVID-19 antibodies constituted around 7% of total revenues in 2022. This diversification strategy positions Eli Lilly as a robust contender in the pharmaceutical landscape.
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Eli Lilly Fundamental Analysis suggests several reasons to buy the stock.
Key Products Spanning Various Therapeutic Fields
Lilly boasts an extensive product portfolio spanning diverse therapeutic areas. The company’s primary focus centers on diabetes, neuroscience, oncology, and immunology, each offering substantial growth potential and significant commercial prospects.
Thriving Diabetes Sector
Lilly possesses a robust array of diabetes treatment medications, including Tradjenta, Jardiance, Trulicity, Synjardy, Glyxambi, Trijardy XR, and Basaglar (basal insulin). Trulicity, its highest-grossing product, achieved sales of $7.44 billion in 2022, up from $6.5 billion in 2021. The addition of a cardiovascular indication on Jardiance’s label in 2017 contributed to increased sales. Projections for Lilly’s overall diabetes drug portfolio suggest a Compound Annual Growth Rate (CAGR) of approximately 24.7% over the next three years.
Novel Medications Fueling Sales Growth
Newer drugs, such as Olumiant (available in Europe) for rheumatoid arthritis, Verzenio (abemaciclib) for metastatic breast cancer, and Emgality (Lilly’s CGRP antibody for preventive migraine treatment), have emerged as significant contributors to sales growth. In 2019, Lilly introduced Reyvow (lasmiditan) oral tablets for the acute treatment of migraines. In 2020, Lilly launched Retevmo/selpercatinib (for lung and thyroid cancer with RET alterations) and Lyumjev/Ultra-rapid Lispro (for Type I and Type II diabetes).
Moreover, Lilly’s successful drugs are currently undergoing assessment for additional indications and label expansions. Verzenio is in Phase III development for prostate cancer. Jardiance was approved for chronic heart failure in individuals with reduced left ventricular ejection fraction (LVEF) and for heart failure with preserved LVEF in 2021/2022. Regulatory applications for the indication of chronic kidney disease are under review in the United States, and Jardiance received approval for this indication in the EU in July 2023.
Mounjaro Expected to Emerge as a Leading Revenue Catalyst
In May 2022, the FDA greenlit Lilly’s novel diabetes therapy, Mounjaro/tirzepatide, a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA). This medication showcased remarkable blood sugar reductions and weight loss among patients with type II diabetes during its Phase III trials. Subsequently, Mounjaro received regulatory approval in Europe and Japan in the third quarter of 2022.
Mounjaro marks the first of a potential quartet of fresh pharmaceuticals slated for release by Lilly before 2023 concludes. This product is already yielding impressive sales and is poised to capitalize on robust demand trends. In the initial half of 2023, Mounjaro accrued sales amounting to $1.55 billion. Moreover, Mounjaro is earmarked as a key, long-term revenue driver for Lilly, as it holds promise for approval in the treatment of obesity and other diabetes-associated conditions. Notably, clinical trials demonstrated Mounjaro’s superior efficacy in weight reduction for the obesity indication. Regulatory submissions for Mounjaro have already been filed for obesity indications in both the United States and the European Union. In the U.S., the FDA has expedited the review process with a decision anticipated by year-end. Our projections for Mounjaro indicate a Compound Annual Growth Rate (CAGR) of approximately 206.1% over the next three years.
Pipeline Progress Underway
Lilly is actively bolstering its pipeline, boasting a diverse range of compounds in various developmental phases. Key therapeutic domains of focus for Lilly encompass obesity and diabetes, immunology, neuroscience, and oncology. Standout pipeline candidates include Omvoh/mirikizumab (ulcerative colitis – under U.S. review and approved in Europe; Crohn’s disease – Phase III), lebrikizumab (atopic dermatitis – under review in the U.S. and Europe), Jaypirca/pirtobrutinib (chronic lymphocytic leukemia – under U.S. review and mantle cell lymphoma – U.S. approval in January 2023 and under review in Europe), Efsitora Alfa/basal insulin-Fc (Type I and II diabetes – Phase III), imlunestrant (metastatic ER+HER2 breast cancer – Phase III), retatrutide (tri-agonist GGG) (Type II diabetes and obesity – Phase III), orforglipron (Type II diabetes and obesity – Phase III), and donanemab (early Alzheimer’s – under review in the U.S. and Europe; preclinical Alzheimer’s disease – Phase III).
We anticipate an FDA decision on Omvoh/mirikizumab in the U.S. by year-end 2023. Omvoh has already made its debut in Japan and Europe, with further European launches slated by year-end. Regulatory action for lebrikizumab is foreseen in both the U.S. and Europe by year-end. Additionally, we expect the FDA to issue decisions on Jaypirca for the chronic lymphocytic leukemia indication and on donanemab for early Alzheimer’s disease by year-end 2023.
Focused on Dividends and Cost Efficiency.
Lilly consistently directs its surplus cash towards stock repurchases, offering returns to shareholders. This distribution of funds to stakeholders, encompassing dividends and stock buybacks, amounted to approximately $7 billion in 2019, around $3.2 billion in 2020, about $4.35 billion in 2021, and roughly $5 billion in 2022. Concurrently, Lilly is actively engaged in seeking licensing agreements and acquisitions to propel short- and medium-term growth. Furthermore, the company is diligently working on reducing operational costs and workforce numbers to optimize its bottom line. Notably, since 2016, Lilly has realized a substantial enhancement of about 1,000 basis points in its operating margin. Importantly, the company systematically reinvests these savings into new pharmaceuticals and overall corporate expansion.
Favorable Debt Footprint.
As of June 30, 2023, the company had a total debt of $18.8 billion, comprising both long-term and current debt, while also possessing $2.83 billion in cash and short-term investments. The total debt-to-capital ratio stood at 62.0% as of June 30, 2023, a favorable decline from 62.6% as of March 31, 2023. This consistent downward trend indicates diminishing financial risk. Notably, Moody’s has conferred an A1 rating upon Lilly for its long-term debt, signifying a low level of credit risk. Additionally, for short-term debt in the form of commercial paper, Moody’s has assigned a P-1 rating, indicating the company’s robust capacity to meet short-term debt obligations. In summation, Lilly boasts a robust financial standing.
Eli Lilly Fundamental Analysis.