Eli Lilly (LLY) reported better-than-expected first quarter earnings Thursday morning.

Revenue rose 15% year over year to $7.81 billion, exceeding estimates of $7.39 billion. Adjusted earnings per share of $2.62 — up 63% year over year — handily beat estimates of $2.32.

• Excluding revenue from chemotherapy alimta, which lost exclusivity, and Covid antibodies, Eli Lilly’s revenues increased 10% for the quarter and it was volume-driven growth.

• The adjusted operating margin was 33.4%, representing an increase of about 10 percentage points year over year, driven by higher gross margin and lower research and development expenses for Covid antibodies.

Selected products

Here’s a rundown of Lilly’s key products, which in the first quarter collectively grew revenues 14.7% year over year.

• Trulicity revenue of $1.74 billion missed estimates of $1.8 billion

• Cyramza revenue of $230.3 million missed estimates of $256 million

• Jardiance revenue of $419.4 million exceeded estimates of $401 million

• Taltz revenue of $488.1 million missed estimates of $532 million

• Olumiant revenue of $255.6 million missed estimates of $287 million

• Verzenio revenue of $469.4 million exceeded estimates of $430 million

• Emgality revenue of $149.3 million missed estimates of $163 million

• Tyvyt revenue of $85.5 million missed estimates of $88 million

• Retevmo revenue was $41.8 million edged out estimates of $41 million

 Other notable products:

• Covid antibodies’ revenue of $1.47 billion for the quarter, exceeding estimates of $1.13 billion, and the main source of the overall beat in the quarter.

• Forteo revenue of $137.4 million missed estimates of $159 million

Pipeline update

The biggest news of the day was not the quarterly numbers. It was the results from a phase 3 trial of Eli Lilly’s obesity drug tirzepatide, which showed it was highly effective, tolerable, and superior to a competitor. It is needless to say how revolutionary this drug will be for the approximately 650 million people around the world who suffer from this disease, and people who want to lose weight.

On Eli Lilly’s Alzheimer’s treatment drug donanemab, we want to remind the club to keep expectations in check for the rest of this year. The conversation around donanemab will pick up in mid-2023 after a key phase 3 data readout.

Guidance

Turning to 2022 guidance, management increased its total revenue outlook to $28.8 billion to $29.3 billion from $27.8 billion to $28.3 billion. This new view, which was higher than estimates of $28.59 billion, reflects additional revenue from their Covid therapy, an unfavorable impact from FX, and strength in the core business.

The adjusted EPS outlook was revised lower by $0.35 from $8.50 to $8.65. But don’t be alarmed. The change includes a $0.55 impact related to acquired IPR&D (in-process research & development) milestone charges which the Securities and Exchange Commission now requires the industry to include in company accounting. If we were to ignore the $0.55 hit, Eli Lilly would have raised guidance by $0.20.

Lastly, adjusted operating margins were revised down from 32% to 30%, primarily due to the acquired IPR&D and development milestone charges.

Bottom line

It was another strong quarter and fantastic pipeline update from Eli Lilly, a best-in-class name in the pharmaceutical industry thanks to its volume-driven growth, limited loss of exclusivity risk, valuable pipeline and history of operating margin expansion. We sold LLY earlier in the year, capturing the 250 - 300$ move the stock made. With the stock having pulled back prior to the print, we dipped our toes back in to build another position. After this great quarterly print and great news from tirzepatide, we actually wish that the stock would come down more with the broader market, so that we can build another great position in this best-in-class healthcare stock.