Drugmaker Eli Lilly and Co. (LLY) posted better-than-expected fourth-quarter results on Wednesday, Jan. 31, but diabetes concerns weighed on shares.

The stock was trading at $82.28 on Wednesday afternoon, down 4.4%.

"The quarter illustrates how dependent Lilly is on major diabetes assets, Trulicity, Jardiance and Basaglar, and doesn't alleviate our concerns," BMO Capital Markets Alex Arfaei wrote in a note.

"While we appreciate the growth potential of the [glucagon-like peptide-1] class [which includes Trulicity], we have concerns about Trulicity's Rewind study later this year," he said, noting that Novo Nordisk A/S (NVO) Type 2 diabetes drug Ozempic "has a positive head to head vs. Trulicity and favorable [cardiovascular] data." If the Rewind study did not demonstrate a cardiovascular benefit, "Trulicity should lose significant share."

Meanwhile, Jardiance will face competition from Merck & Co. (MRK) and Pfizer Inc.'s  (PFE) ertugliflozin, as well as Johnson & Johnson Inc.'s (JNJ) "continued aggressive rebating with Invokana and head-to-head oral Semaglutide data from Novo," Arfaei said.

As for Basaglar, Arfaei expected "significant price erosion" in the longer term, with more biosimilars eventually getting into the market.

Enrique Conterno, president of Lilly Diabetes and Lilly USA, said on an earnings call Wednesday that "we continue to see pressure on pricing across all of our diabetes products."

"When we look at our Q4 results, I think there was pressure from a rebating perspective on the insulin portfolios of both Humalog and Basaglar in particular," Conterno said. "But we are being extremely disciplined, and we like our overall prospects and the access that we basically have with all of our top brands. We believe that Trulicity, for example, is extremely well positioned for '18, and so is Jardiance."

Indianapolis-based Eli Lilly on Wednesday reported fourth-quarter adjusted earnings per share of $1.14, representing a 20% rise from the year-ago period. Revenue grew 7% year over year to $6.16 billion.

Analysts had forecast, on average, adjusted EPS of $1.07 on revenue of $5.93 billion, according to Bloomberg.

New products, including Trulicity, Jardiance and psoriatic arthritis and plaque psoriasis treatment Taltz, "continued to drive solid revenue growth in the fourth quarter of 2017, while we maintained flat operating expenses," Eli Lilly chairman and CEO David A. Ricks said in a statement.

Trulicity had sales of $649 million during the quarter, a 93% rise year over year. Jardiance generated $143.2 million, up 88%, and Taltz had $172.5 million, an increase of 182%.

For full-year 2018, Eli Lilly projected non-GAAP EPS of $4.81 to $4.91, taking into account the estimated effects of the new tax law. The previous guidance was $4.60 to $4.70 a share. On the revenue side, Eli Lilly continued to expect to generate between $23 billion and $23.5 billion.

Commenting on Eli Lilly's Elanco animal health business, Ricks said on the call that the review of strategic alternatives for the unit, first announced in October, is "proceeding well" and the company is on pace to discuss its decision on its second-quarter earnings call in July.

The animal health unit had revenue of $790.9 million in the fourth quarter, down 6% from the same period last year.

Also on the call, Ricks said he expected 2018 to be a busy year regulatory-wise in Washington "as they look to introduce market mechanisms and lower costs at the pharmacy counter for patients." He said Lilly will partner with the administration "to try to make positive progress in a pro-innovation way that actually affects patients' pocketbooks."

Lilly's earnings call came after President Donald Trump delivered his State of the Union address Tuesday night, in which he said bringing down the price of prescription drugs is among his greatest priorities. The key question, of course, is how to rein in the costs.

Eli Lilly is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells LLY? Learn more now.

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