Hit by a spate of bad news, Eli Lilly and Co. (LLY, Financial) has lost nearly 8% of its market value since July 28. Is it time for investors to join those bailing on the stock or jump in on the dip?
The stock’s run-up has lost steam, but at around $304, Eli Lilly shares are still up 38% from its 52-week low.
I have owned Eli Lilly for years and am sticking with the program. The company’s positives far outweigh what I think are some addressable issues. While there have been some small blips along the way, the shares have climbed steadily over the past five years.
Some investors may have become nervous after seeing the pharmaceutical company’s second-quarter results fall short of expectations. However, Eli Lilly sought to calm the waters by emphasizing the revenue outlook for the full year is on track, with sales expected to come in at $28.8 billion to $29.3 billion, although the company’s projections for earnings per share were cut to $7.90 to $8.05 while analysts had pegged the figure at $8.38.
Some of the hand-wringing was caused by the second-quarter performance of Eli Lilly’s migraine treatment Emgality, which earned the Food and Drug Administration's approval four years ago. Sales of the medication were up just 1% from the same period a year earlier, topping out at $157.5 million.
A deeper dive shows that maybe those results are not as bad as they looked. While the drop was 3% in the U.S., a bright spot was elsewhere the drug is sold, with revenue shooting up 11% on increased demand.
Fierce Pharma reported that sales of Eli Lilly’s other migraine treatment, Reyvow, were not broken out, but the treatment has suffered from poor sales and concerns about side effects.
It appears that both AbbVie Inc. (ABBV, Financial) and Biohaven Pharmaceutical Holding Co. Ltd. (BHVN, Financial), which is being acquired by Pfizer Inc. (PFE, Financial), will battle for dominance in the migraine market, but Eli Lilly certainly wants a piece of a business that is expected to grow rapidly over the next several years, reaching nearly $3 billion by 2026, according to 360 Research Reports.
Caption: Despite a few blips along the way, Eli Lilly's stock has been a steady gainer during the past five years.
On the bright side, sales of Eli Lilly’s new diabetes treatment, Mounjaro, exceeded expectations. In the six weeks since it gained FDA approval, the medication contributed $16 million in sales, well over forecasts for $10 million to $12 million.
Other big gainers were the company’s top-selling drug Trulicity, which generated revenue of nearly $2 billion, up 22%, and its Covid-19 treatments, which climbed 67% to more than $129 million. Falling short were sales of psoriasis treatment Taltz, diabetes medication Humalog and the cancer drug Alimta, which is facing generic competition.
Investors also may be skittish about the new climate control bill's effect on Eli Lilly. The legislation—which is almost certain to get the House’s approval—permits the government to negotiate drug prices for the Medicare program. Products from Eli Lilly, as well as those from Amgen Inc. (AMGN, Financial), AstraZeneca (AZN, Financial) and AbbVie Inc.(ABBV, Financial), are at high risk to fall under the government’s price controls, SVB Securities analysts recently said. However, the blow is softened somewhat because the bill initially only covers 10 drugs that have been on the market for a long time without any copycat competition. What’s more, its focus is strictly on Medicare, so the large private health insurance market is unaffected.
The current consensus among 22 polled investment analysts is to buy Eli Lilly, according to CNNMoney. The 18 analysts offering 12-month prices have a median target of $347.50, with a high estimate of $395 and a low estimate of $202.
