Eli Lilly Has Catalysts Ahead

Eli Lilly reports earnings on Tuesday. The stock could continue to rise, as the company has several catalysts on the horizon.
By Chris Laudani ,

Eli Lilly (LLY) - Get Report reports its second-quarter results on Tuesday, July 26. The stock could continue to rise, as the company has several catalysts on the horizon.

On June 21, the FDA posted briefing documents regarding Eli Lilly's application to expand the label for Jardiance, the company's diabetes drug. The stock jumped 12% on the news.

Lilly asked the FDA to expand the drug's label to include a reduction of cardiovascular death in high-risk type II diabetes patients using Jardiance. Jardiance was the first diabetes treatment to demonstrate a reduction in the risk of cardiovascular death. The company spent thee years studying 7,000 patients from 42 countries with type II diabetes at high risk for cardiovascular death, non-fatal heart attack or non-fatal stroke.

After a tumultuous advisory panel meeting, the board voted 12 to 11 in favor to change the label and treatment guidelines for Jardiance. The decision is expected to increase sales of Jardiance. The change in the label should be completed later this year.

Lilly has several catalysts that could push the stock higher. Investors are eagerly looking forward to results from the company's Expedition 3 trial of its mild-Alzheimer's drug solamezumab. Lilly is expected to report Expedition 3 results sometime in December. Other catalysts include results from the Rewind study regarding cardiovascular risk related to its drug Trulicity for diabetes, and the Monarch II and III studies for abemaciclib, Lilly's breast cancer drug. Overall, Lilly has seven drugs in phase III trials and two under regulatory review.

Total first-quarter revenue rose 5% to $4.865 billion. Operating income rose 36% to $716 million and earnings per share were 41 cents. Earnings were down 18% due to a higher tax rate and a 17% reduction in net income.

Lilly has been hurt by the 2013 loss of patent protection of the antidepressant Cymbalta. Cymbalta sales are expected to be approximately $700 million in 2016, down from the $5.1 billion achieved in 2013. The company returned $800 million to shareholders in the form of dividends and share buybacks.

For the second quarter, analysts are looking for revenue of $5.15 billion and earnings of 85 cents per share. For the year, the company sees revenue in the $20.6 to $21.1 billion range and earnings per share between $3.50 and $3.60.

The stock is being pushed higher by the prospects of the company's pipeline results and not necessarily by the company's earnings fundamentals. That said, the stock should be able to continue its march higher simply based on pipeline momentum, share buybacks and a solid dividend payout.

Analysts are expecting earnings to jump 20% next year to $4.24, as the company's R&D efforts begin to pay off.

With enough catalysts ahead, Eli Lilly seems like a solid bet.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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