Eli Lilly's big picture justifies his high rating

Eli Lilly's big picture justifies his high rating

Eli Lilly & Co. was a favorite of pharmaceutical investors, as evidenced by the high premium of the stock over its peer group. However, her preference was more for promises than delivery in the real world.

The earnings report from the drug company for the third quarter brought the house home. Without a respectable performance of some older drugs, Lilly would not have met sales expectations – which is unlikely in the future – and the company's stock fell more than 4 percent in early trading.

But to retire, to have a broader view, there is much to like. The long-awaited IPO of Elanco Animal Health in September provided cash and was expected to improve the growth prospects for Lilly's remaining core businesses. Key Trial Results for Diabetes Medicine On Monday, Trulicity created the necessary security for a key growth driver. In short, the challenges remain, but Lilly seems prepared to consistently implement the promise that has been made in the fairly strong rating.

The effects of the Trulicity experiment are difficult to overestimate. If the drug had not shown any benefit in heart disease, it would have been extremely difficult to reach the drug's future sales estimates of $ 5 billion, and its revenue forecasts would generally have been in serious danger.

Trulicity will still face a challenging price environment and competition with Novo Nordisk A / S medicines, but Monday's robust results in a hard-to-treat population may even slightly improve current expectations. The drug did not exactly affect results for the quarter. However, the benefits of the study should increase Lilly for years.

Trulicity can not carry the growth burden alone, as the sale of other major drugs begins to erode. The company will also put on newer medications such as Taltz for psoriasis, breast cancer drug Verzenio, antithyroid drug Olumiant and migraine treatment Emgality. While these drugs are in overcrowded disease areas – some have several direct competitors – and in particular, the use of Olumiant in the US has been curtailed, Lilly has at least a diverse supply of new medicines in large markets. Much of its growth is based on sales volume, not price. Not all competitors can say that.

Lilly's research and development projects offer both risks and benefits. Lilly has a promising non-opioid analgesic, but safety remains a problem. Earlier this year, it also released compelling data for a next-generation diabetes drug.

In addition to its own research efforts, Lilly seems ready to further expand the pipeline. The $ 1.6 billion acquisition of ARMO Biosciences was an interesting but prudent entry into the next generation of cancer drugs, which are still open to a host of disappointing trial results. Lilly's CFO told Reuters on Tuesday that the company is open to similar transactions. The proceeds from the initial public offering of Elanco and Lilly's valuable stake in the company should help.

There may be a few rocky quarters as newer medications with older medications play to control the Lilly story. But on the whole, the story is good.

To contact the author of this story: Max Nisen at mnisen@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editors or the Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist for the biotech, pharmaceutical and healthcare industries. Previously, he wrote about management and corporate strategy for Quartz and Business Insider.

© 2018 Bloomberg L.P.

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