WIC Portfolio holding Eli Lilly (LLY) reported better-than-expected results for the fourth quarter of 2021 before the opening bell on Thursday.

Revenue of $8 billion (+8% YoY) exceeded estimates of $7.87 billion, and adjusted earnings per share of $2.49 (+8% YoY) beat estimates of $2.45.

Selected Products

Taking a look at the company’s key products, which collectively grew revenues 13.6% YoY:

• Trulicity revenue of $1.883 billion exceeded estimates of $1.804 billion

• Cyramza revenue of $270.4 million missed estimates of $280 million

• Jardiance revenue of $431.9 million exceeded estimates of $408 million

• Taltz revenue of $647.4 million exceeded estimates of $632 million

• Olumiant revenue of $306 million missed estimates of $340 million

• Verzenio revenue of $404.1 million matched estimates

• Emgality revenue of $161.5 million beat estimates of $156 million

• Tyvyt revenue of $77.8 million missed estimates of $129 million

• Retevmo revenue was $38.6 million missed estimates of $45

Other notable products:

• Covid antibodies’ revenue of $1.063 billion, exceeding estimates, and the main source of the overall beat in the quarter. However, do note the news that FDA has halted the use of Lilly's Covid antibody treatment due to its ineffectiveness against fighting Omicron. While this poses as a headwind for Lilly's Q1 FY 2022 results, keep in mind Omicron has now largely subsided and we are waiting for another Covid variant. Hopefully by then, Lilly will have worked something out.

• Forteo revenue of $184 million missed estimates of $184 million

• Alimta revenue of $434.9 million missed estimates of $517 million

Pipeline Update

When you are analyzing a drug stock, as much as it is important to focus on the current product lineup, you also need to keep an eye out on the development pipeline because that’s the future. The two most valuable drugs in Eli Lilly’s pipeline, and perhaps even the entire pharmaceutical industry, are tirzepatide and donanemab. 

For tirzepatide, all lights are green. The company has submitted the drug for approval for the treatment of type -2 diabetes across all major geographies, and management continues to expect U.S. regulatory action by middle of this year.

For Donanemab, Lilly’s revolutionary Alzheimer’s treatment medicine, is a slightly different story. Management pushed back further the completion of the accelerated approval submission out of the first quarter. This decision had nothing to do with requests for more data by the FDA. Instead, management attributed the move entirely to the Centers for Medicare & Medicaid Services’ recent national coverage decision. We talked about this last month. This piece of news hurted the stock when it came out (stock was in the $260), and continues to hurt the stock today (down >2%), we continue to reiterate our view that this is simply a speed bump and not a thesis changer because the long-term opportunity has not changed. As a reminder, Eli Lilly has had very low expectations for the use of donanemab during the period between potential accelerated approval and its Phase 3 data readout in mid-2023. What matters most to management is ensuring the broad availability of donanemab after the confirmatory Phase 3 data. 

Guidance

Turning to 2022 guidance, Eli Lilly reaffirmed the outlook they provided at their December 2021 Investor Day event. We weren’t expecting any fireworks with guidance because this view was provided just a few months ago. Management expects revenue of $27.8 billion to $28.3 billion, operating income of approximately 32%, and adjusted earnings per share of $8.50 to $8.65.

Bottom line — buying opportunity

No real surprises in the results or with guidance as management pre-announced the quarter and provided its 2022 view (which was better than expected at the time of issuance) at the December 2021 Investor Day.

The news getting the most attention, and hitting the stock, is the pushback of donanemab’s accelerated approval submission to the U.S. Food and Drug Administration out of the first quarter. However, we don’t see the delay as a thesis disrupter. With shares trading lower by 2% today, and more than 10% off from recent highs, we think this price presents a buying opportunity. We reiterate our 1 rating, meaning this is a stock we would buy right here.

We continue to believe Eli Lilly is a best-in-class name in the pharmaceutical industry thanks to its limited loss of exclusivity risk, strong pipeline, and history of operating margin expansion.