Eli Lilly’s raised guidance stole the show Tuesday, offsetting mixed first-quarter results and propelling shares up nearly 6%. The numbers leave little doubt that Eli Lilly’s long-term success remains intact as demand for its new diabetes and obesity drugs, Mounjaro and Zepbound, outstrips supply. Revenue in the quarter ended March 31 rose 26% year over year to $8.77 billion, less than the $8.92 billion expected by analysts, according to estimates compiled by LSEG. First-quarter adjusted earnings per share were $2.58, beating the consensus estimate of $2.46, according to LSEG data. Eli Lilly Why We Own It: Eli Lilly’s top drugs are expected to deliver growth above the industry average for many years to come. The portfolio is anchored by its GLP-1 franchise, which currently includes Mounjaro for type 2 diabetes and Zepbound for obesity. This rapidly growing class of drugs has the potential to treat other conditions, such as sleep apnea, and reduce the risk of stroke. Lilly’s experimental treatments for Alzheimer’s disease add to the stock’s long-term appeal. Competitors: Novo Nordisk, Biogen, Eisai, Merck and Pfizer Portfolio weight: 2.7% Most recent purchase: February 7, 2023 Initiated: October 8, 2021 Conclusion Eli Lilly checked all the boxes that matter to long-term investors , including the Club, which is why it is not surprising to see the title having one of its best days of the year. At their morning highs, Eli Lilly shares traded above their all-time closing high of $792.28 set on March 4. Demand for Mounjaro and Zepbound – which share an active ingredient known as tirzepatide – is off the charts. But, just as importantly, management is skillfully managing the complex and expensive process of increasing injectable drug production capacity to alleviate supply constraints. This needs to happen for Lilly to meet Wall Street’s high growth expectations. “This is the highest quality issue,” Jim Cramer said Tuesday, referring to demand for Mounjaro and Zepbound that far exceeds availability. LLY .SPX 5Y tracks Eli Lilly’s stock performance over the past five years compared to the S&P 500. Eli Lilly expects significant increases in shipping volumes for Mounjaro and Zepbound in the second half of 2024. This has enabled management to raise its annual revenue and profit forecasts less than three months after their initial release, calming the noise around the first quarter results. “I like everything I heard” from Eli Lilly on Tuesday, added Jim, who has long said tirzepatide could become the best-selling drug of all time. In fact, nothing in Tuesday’s report diminishes the likelihood of this happening in the coming years. We maintain our rating of 2 and our price target of $850 per share on the stock. Quarterly Commentary In its first full quarter in the U.S. market, Zepbound’s sales exceeded Wall Street expectations, totaling $517.4 million for the quarter ended March, compared to an estimate of $373.3 million , according to FactSet. Zepbound’s insurance coverage, a crucial part of its long-term financial success, is improving “rapidly,” Chief Financial Officer Anat Ashkenazi said on the post-earnings conference call. As of April 1, Zepbound had approximately 67% access to the commercial insurance market, up from approximately 33% on February 1, according to the company. Zepbound was approved by U.S. regulators in early November and arrived in pharmacies a few weeks later. In the fourth quarter, Zepbound’s revenue was approximately $176 million. Mounjaro’s first-quarter sales more than tripled to $1.81 billion, but missed Wall Street estimates. This isn’t really a surprise given supply constraints. Lilly’s other GLP-1 for type 2 diabetes on the market, Trulicity, saw sales fall 26% to $1.46 billion. It also missed revenue estimates. Like Zepbound and Mounjaro, Trulicity is facing shortages. Historically, some patients also switch to Mounjaro from Trulicity. According to a Food and Drug Administration database, most doses of Zepbound and Mounjaro are expected to see limited availability through the end of the second quarter in June. It’s a similar schedule for most doses of Trulicity, which was first approved nearly a decade ago. All three drugs are injectable once a week, and patients increase the dose over the course of treatment. “Unprecedented demand” for so-called incretin drugs from Eli Lilly — a group that includes Zepbound, Mounjaro and Trulicity — is contributing to the shortages, Ashkenazi said on the call. “In the short to medium term, we expect sales growth to depend primarily on the quantities we can produce and ship,” she said. Quantities are expected to increase. Eli Lilly’s production of incretin doses in the second half of 2024 is still on track to be about 1.5 times higher than the same period last year, Ashkenazi said. The company has six production facilities under construction or in the ramp-up phase, Ashkenazi said. Last week, the company announced an agreement to acquire a seventh facility from Nexus Pharmaceuticals located in Wisconsin. Eli Lilly estimates that production could start there late next year. Eli Lilly’s main competitor in the GLP-1 market, Ozempic and Wegovy maker Novo Nordisk, is also investing heavily to overcome shortages of its drugs. “Our top priority is to make more products,” Eli Lilly CEO Dave Ricks told CNBC on Tuesday. “We’re doing everything we can to make this happen. It’s one of the most technically complicated drugs we’ve ever made.” Eli Lilly also said the FDA advisory committee that plans to review the safety and effectiveness of its experimental Alzheimer’s treatment, donanemab, has not yet scheduled the meeting. However, it is expected to take place mid-year, with management reiterating its confidence in the drug’s ability to slow the progression of the memory-destroying disease. Eli Lilly previously anticipated regulatory approval in late March. Eli Lilly now expects annual revenue between $42.4 billion and $43.6 billion, up $2 billion at both ends of the range. Its revised outlook for adjusted earnings per share is between $13.50 and $14.00, up from $12.20 to $12.70; that’s about 10% more at the halfway point. Eli Lilly also raised its adjusted operating margin outlook to between 33% and 35%, from 31% to 33%. The changes are driven by strong performance from Mounjaro and Zepbound, as well as “greater visibility” on Eli Lilly’s production expansion plans, the company said in a statement. These are exactly the reasons why you would want Lilly to go on guided hikes. Overall, the more optimistic financial outlook helps make Eli Lilly’s high price-to-earnings ratio more tolerable for investors. Eli Lilly’s full-year outlook for other income and its tax rate remained unchanged. The company does not offer quarterly forecasts. (Jim Cramer’s Charitable Trust is long LLY. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. 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An injector pen of Zepbound, Eli Lilly’s weight loss drug, is on display in New York, the United States, December 11, 2023.
Brendan McDermid | Reuters
Elie LillyThe raised guidance stole the show Tuesday, offsetting mixed first-quarter results and propelling shares up nearly 6%. The numbers leave little doubt that Eli Lilly’s long-term success remains intact as demand for its new diabetes and obesity drugs, Mounjaro and Zepbound, outstrips supply.
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