Eli Lilly (LLY) stock sagged on Tuesday even as earnings bested analyst estimates and well-timed drug approvals.
Stock of the pharmaceutical giant fell 3.85% in Tuesday's trading, finishing at $105.90 after poking positive only once after the trading day. The drop reflects a significant whipsaw from pre-market hours, which provided gains up to 5%.
Possibly explaining the slide were some mixed results underneath the top and bottom line beats and looming political pressures on election day.
Analysts noted that some of the company's older diabetes drugs that are beginning to fall out of favor soured the otherwise positive release.
"It was all because of weakness on a couple of key diabetes products," Evercore ISI analyst Umer Raffat told Real Money. "The quality of beat is quite low this quarter."
Humalog, an insulin drug and the most profitable established drug for the company, saw a 5% decline in revenue globally and a 12% drop in domestic sales, indicating waning importance in medicine.
Raffat added that the guidance raise was not towards the lower end of what was expected. Given the company's high price to earnings ratio compared to its peer group, a higher raise might have been more amenable to the market and assuaged concerns on lessened product profitability.
Credit Suisse analyst Vamil Divan homed in on yet more laggard products specifically in a research note detailing the earnings.
"Performance of key products that are part of the new product story were mixed," he said. "Olumiant U.S. sales of $800,000 were surprisingly light in its first full quarter on the U.S. market, while Humalog sales came in below expectations."
Olumiant, a drug to treat rheumatoid arthritis, was the smallest part of the "New Medicines" revenue segment with just $55.6 million in global revenues.
Jump in Generics
There also remains the worry over generic drug competition cutting further into these traditional cash cow offerings. The Trump administration's promotion of generic drugs adds to this possible investment risk.
According to a White House Report, the Food and Drug Administration set a new record for generic approvals in 2018, besting the 2017 record wherein more than 1,000 generics were approved.
Teva Pharmaceutical Industries' (TEVA) tadalafil undercut sales in Cialis with copycat generics, for example, indicating the impact of generic proliferation.
Bright Future Remains
That said, newer drugs were a key growth driver for the company, highlighting future growth opportunities.
Trulicity, a new and recently studied diabetes drug, has been a key growth driver for the company, with revenue from the drug increasing to $816.2 million, up 55% year over year.
Lilly's revenue in the U.S. increased 11% year over year, to $3.4 billion, largely due to increases from Trulicity and its psoriasis drug Taltz.
"New medicines," which account for approvals achieved since 2014, accounted for 35% of revenue overall in the quarter for the Indianapolis-based drugmaker.
The company will have a great deal of cash to continue studying new drugs and possibly acquiring them as a result of its spinoff of veterinary medicine unit Elanco Animal Health (ELAN) .
The company announced that the spinoff has left the company with 80.2% of Elanco, which it will actively work to divest within one year of the IPO. The spinoff netted Eli Lilly a handsome $4 billion, according to the company's SEC filings.
"We'll put that money (to use) against our capital priorities," Eli Lilly CFO Joshua Smiley told Reuters on Tuesday morning. "The Armo deal that we did earlier this year, we'll look to do more of those."
The company's $1.6 billion acquisition of Armo marked a focus on cancer and immune-oncology treatments, a lucrative sector of pharmaceuticals. The company may look to place a more concerted focus on cancer treatments in the future, given its partnership NextCure, Inc. to discover new cancer therapies announced on Monday.
Eyes on the Midterms
The midterm elections will have the eyes of pharmaceutical executives and investors alike, as many speculate as to how drug pricing will factor into political platforms.
"Pricing was a bit of a drag this quarter," CEO David Ricks told CNBC this afternoon. "Of course if we had raised prices it could have offset some of that."
Pressure keeping these prices clamped down would guarantee this drag would persist.
"There are some things we like, where we could work with the administration to support free market principles and innovation," Ricks said. "There are some things we don't like, importing price controls from Europe is high on that list."