Pharmaceutical giant Eli Lilly & Co (LLY) reported the firm's third quarter financial results on Tuesday morning. The firm had a nice quarter.
Adjusted EPS easily beat Wall Street at $2.04 (GAAP EPS: $1.61) on revenue of $6.94B. The sales number also beat Wall Street and at year over year growth of 2.5% and re-established LLY as a growing enterprise after a down second quarter. Ex- the effects of FX, revenues would have grown 7%.
During the quarter, the firm successfully launched diabetes drug Mounjaro, leading to $97.3M in sales here in the US and $86M related to a sales collaboration agreement to distribute the drug in Japan. There are extremely high hopes for Mounjaro, which has already been approved to improve blood sugar levels, but is also in clinical testing for use in the fight against obesity. Once approved for that purpose, the drug is projected to potentially generate well more than $1B annually for the firm. This is why we, who are long the name, are indeed long the name.
Interestingly, with revenue growing 2.5% and operating income decreasing 11%, net income as reported, increased 31% to $1.451.7B as other (not operating) expenses decreased 83% to $111M.
Revenue Drivers
Trulicity (diabetes) experienced 16% sales growth to $1.850.4B.
Taltz experienced 15% sales growth to $679.9M.
Verzenio (breast cancer) experienced 84% sales growth to $617.7M.
Jardiance (diabetes) experienced 47% sales growth to $573.3M.
Humalog (diabetes) experienced a 29% sales decline to $477M.
Covid-19 antibodies experienced 78% sales growth to $386.6M.
Humulin (diabetes) experienced a 17% sales decline to $238.2M.
Cyramza (stomach cancer) experienced an 8% sales decline to $232.1M.
Tempered Expectations
Eli Lilly reduced guidance across a number of metrics, which is why the shares were trading lower on Tuesday.
For the full year...
The firm took revenue down to $28.5B-$29B from $28.8B-$29.3B. Wall Street is close to $28.8B on this number. This is largely due to $300M additional FX drag since last quarter.
Non-operating income/expenses have been increased from $-600M to $-500M, to $-700M to - $-600M.
Operating Margin as reported was reduced to 26% from 27%.
GAAP EPS was reduced from $6.96 to $7.11, to $6.50 to $6.65.
Adjusted EPS was reduced from $7.90 to $8.05, to $7.70 to $7.85. Wall Street is up around $7.99 here. The firm expects an unfavorable impact from foreign exchange of $0.06 per share.
My Thoughts
I am long this name. This morning's move has cut my paper profits by more than half so I am not thrilled. The impact of foreign exchange can't be helped. Competition from generics is growing. That's a fact. I also came in long Pfizer (PFE) today and that stock is trading higher, so this is not an unchecked uppercut to the chin.
The reason I am here is primarily for the diabetes/obesity drug Mounjaro. They say on-label approval for obesity may not come until late 2023. I was hoping for the first half of the year. Guess that's not going to happen. The point is that the stock trades at 45 times next year's earnings, which is expensive and now one has to think that next year's earnings may get a little wonky. Pfizer, by comparison, trades at 7 times next year's earnings.
What I am trying to say is that I want to be long LLY going forward, and I would like to increase that position at lower prices but I do not think there is any reason to act with haste.
The stock will test its 21 day EMA this afternoon. I will likely add just a little bit there. If that line cracks, my intention is to drop down to the 50 day SMA at $323 and wait there to buy more than I did at the 21 day EMA. Even if it takes days. If the stock cracks the $335-ish level that proved to be stiff resistance for the month of July in its entirety and for most of October, it stands to reason that algorithmic resistance would aggregate there once again.
Plan
- Purchase a little at the 21 day EMA (currently $340).
- Purchase a little more at the 50 day SMA (currently $323).
One idea would be to go out three months and sell (write) the January 20th $320 puts for about $10. Should the trader get tagged and have the shares out to them, they would come with a net basis of $310. If not, $10 is $10.
