Morningstar | Eli Lilly Is Well-Positioned for Growth After Splitting Off Its Animal Health Business
Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects are improving as the company is launching several new blockbusters and patent losses are fading.Lilly's internal pipeline is well positioned to mitigate the patent losses during the next decade. The company tends to spend over 20% of its sales on financing the development efforts of new drugs, much higher than the midteens industry average. The robust pipeline is a result of Lilly's strong commitment to research. We believe recently approved diabetes drugs Trulicity, Tradjenta and Jardiance and immunology drugs Taltz and Olumiant hold the highest sales potential of Lilly's new drugs. Also, several of Lilly's cancer drugs, such as Cyramza and Verzenio, should develop into blockbusters if additional clinical data holds up. Lilly's strong entrenchment in insulin production should also help the company deal with patent losses. Unlike traditional drugs, Lilly's insulin drugs are very hard to copy by generics and create barriers to entry for noninsulin producers because of the large up-front investments needed to create scale efficiencies. Further, Lilly's longer-acting biosimilar insulin should help the company secure its market share. The company is taking a hard look at its bottom line. Through a combination of cost savings and expected top-line growth, Lilly aims to reach operating margins of 31% by 2020, which we believe is achievable. Lilly expects to increase its gross margin through productivity initiatives and greater capacity utilization, which may prove challenging in 2019 as the patents expire on high-margin Cialis and Alimta in certain markets.Eli Lilly and Company discovers, develops, manufactures, and markets products in a single business segment: human pharmaceutical products. The company's human pharmaceutical products include: diabetes and other endocrinology products, immunology products, neuroscience products, oncology products, and other products. The company's diabetes and other endocrinology products include: Baqsimi? and Basaglar?. The company's immunology products include: Olumiant? and Taltz?. The company's neuroscience products include: Cymbalta? and Emgality?. The company's oncology products include: Alimta?, Cyramza?, Erbitux? and Verzenio?. The company's other products include: Cialis?.
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