Morningstar | LLY Updated Forecasts and Estimates from 08 Nov 2018
Eli Lilly reported third-quarter results slightly ahead of both our and consensus expectations, but we don't expect any significant changes to our fair value estimate, and we continue to view the stock as fairly valued. While Lilly posted strong 32% earnings growth in the quarter (driven by both top-line growth and lower expenses as a percentage of sales), we believe this growth is largely factored into the stock. The strong growth from new products offsetting the declines in older drugs helps support our view that innovative remains strong at Lilly and continues to reinforce the wide moat rating for the firm.A diverse group of products led Lilly's strong growth, but patent losses will likely slow growth in 2019. A key growth driver for Lilly is diabetes drug Trulicity (up 55%), which represents the company's largest drug (13% of total sales). While we expect this drug will continue to grow due to the underpenetrated diabetes market, competition from Novo will likely cause Trulicity's growth rate to moderate in 2019. Also, immunology drugs Taltz and Olumiant, diabetes drug Jardiance, and cancer drug Verzenio all showed robust growth, signaling one of the most diverse sets of growth drivers in Big Pharma. These growth drivers should more than offset generic pressures from erectile dysfunction drug Cialis that will intensify later this year.
Solid expense management and a strong pipeline set Lilly up for steady long-term growth. Lilly's 2020 operating guidance of over 30% looks increasingly achievable and should cause an amplified growth rate on the bottom line as 2018 operating margin should be close to 27.5%. Also, Lilly's pipeline holds new potential blockbusters for migraine (Emgality, launched in the U.S./positive recommendation in Europe, and lasmiditan, likely approval in 2019) and pain (tanezumab, phase 3 data in 2019) as well as new indications for several drugs, especially Trulicity (positive cardiovascular outcomes based on the Rewind study).
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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