Eli Lilly Gets Hit Hard After Earnings.

Shares of biopharmaceuticals giant Eli Lilly (LLY: $830) took a tumble following its third-quarter results this morning, with sales coming in below estimates at $11.4 billion, up 20% YoY, compared to $9.5 billion a year ago. It posted a profit of $1.1 billion, or $1.18 per share, against $100 million, or $0.10, resulting from a $3 billion charge related to an acquired in-process research and development project. Profits during the current year quarter were weighed down by $2.8 billion in charges from acquired in-process research and development. These are the result of its various acquisitions in recent years; without them, the company’s profits would have hit an impressive $3.9 billion. This led the company to lower its outlook for the full year.

The top-line miss was the consequence of lower-than-expected sales of its diabetes and obesity drugs, Mounjaro and Zepbound, at $3.1 billion and $1.3 billion, respectively, roughly flat compared to the prior quarter. Eli’s miss was owing to its inability to meet the demand for its GLP-1 drugs, leading to shortages and empty shelves. We can all agree that consumers not getting enough of Eli’s products is a good problem, especially as the company works to ramp up production, with as much as $18 billion invested in new capacity since 2020. 

In the whole scheme of things, this is a $800 billion giant growing at 20% YoY, with a robust drug pipeline and a string of blockbuster products. The market has overreacted here. The low for the day is $769, so you can see that it has bounced back with strength.

Eli Lilly had a strong showing across most other products during the quarter, with Verzanio, its metastatic breast cancer drug, reaching $1.4 billion in sales, up 32% YoY, followed by Taltz for autoimmune diseases at $880 million, up 18% YoY, and Humalog at $530 million, an increase of 35% from the prior year. The only laggards were its type 2 diabetes drugs, Trulicity and Jardiance, down 22% and 2% YoY, respectively. 

The company had several pipeline wins during the quarter, with FDA approval for its moderate-to-severe atopic dermatitis drug, Ebglyss, for children and adults 12 years and older. In addition, it won approval in Japan for Kisunla to treat early symptomatic Alzheimer's disease. These drugs are potentially worth multiple billions in sales each year once thoroughly commercialized.

The market for GLP-1 drugs will be worth $100 billion by the end of this decade, and Eli’s products are proven to be more effective than those of Novo Nordisk in this regard. The stock is up 42% YTD, and we firmly believe that buybacks and dividends are right around the corner, given Eli’s growing balance sheet with $3.4 billion in cash, $30 billion in debt, and $4.5 billion in cash flow. The stock hit $770 this morning but has bounced back strongly, with heavy buying from institutions and investors. Our Target is $1100, and We Would Not Sell Lilly. The stock reached $972 just last month. We fully expect to see new highs next year.