NVSEF - Eli Lilly Remains A Buy With Strong Sales And Possible Upside With Mounjaro

2023-08-08 13:05:05 ET

Summary

• Eli Lilly and Company's Q2 2023 earnings were boosted by strong sales growth of three key products in its pipeline: Verzenio, Jardiance, and Mounjaro.
• Verzenio, a breast cancer drug, saw significant sales growth due to its approval for multiple indications.
• Jardiance, a treatment for type 2 diabetes, also experienced strong sales growth and has potential for further expansion.
• Potential FDA approval of Mounjaro for weight loss and donanemab for Alzheimer's Disease expected end of 2023.
• Another weight loss drug from Eli Lilly, known as retatrutide, was proven with strong efficacy; patients who took the highest dose of weekly 12 mg of this drug lost an average of 58 pounds in 11 months.

Eli Lilly and Company ( LLY ) has been doing well with respect to its pipeline that it has. That's because it has been able to achieve an increase in growth of sales for many of its products in its pipeline. It all has to do with three strong clinical products in its pipeline that it has, that were able to generate massive sales growth during the most recently reported Q2 2023 earnings .

These three products are Verzenio, Jardiance and Mounjaro. I don't believe that growth will just continue based on this current trend of products, that's because there may even be better hope with Mounjaro outside of being only used to treat patients with diabetes. It is believed that this drug could go toe to toe with Novo Nordisk ( NVO ) Wegovy and Ozempic injections for weight loss. Even without the weight loss segment coming into play, Mounjaro has still been seeing some rapid growth in a short span of time.

With an earning beat for Q2 of 2023, several products obtaining massive sales growth percentages, and the ability to expand MOUNJAROS market in the coming months, I believe that investors might be able to capitalize on any potential gains made.

Three Products Which Achieved Double-Digit Percentage Growth During Q2 2023

The thing about Eli Lilly is that has several products in its pipeline which are doing really well. As I noted above, they are Verzenio, Jardiance and Mounjaro. The first product to go over in the pipeline which contributed heavily into Q2 2023 earnings was Verzenio. The drug was first approved in September 28, 2017 for certain advanced or metastatic breast cancers. Since then, it has been approved for several other breast cancer indications such as:

• Initial treatment for advanced breast cancer - February 26, 2018
• First and Only CDK4/6 Inhibitor for Certain People with HR+ HER2- High Risk Early Breast Cancer - October 13, 2021
• Treatment of HR+,HER2-, node-positive, High risk early breast cancer - March 3, 2023 .

Verzenio has come a long way and still continues to do very well for Eli Lily, and I don't see this stopping anytime soon. It reported that sales of Verzenio in Q2 of 2023 reached $926.8 million, compared to the same time period in 2022 where sales of it only reached $588.5 million.

Why do I believe that this growth trend might continue? It all has to do with the Breast cancer market itself. The global breast cancer market size is projected to reach $73.68 billion by 2032 . In light of competition it has been growing well, but notice above that it has received approval of two HR+/HER2- breast cancer patient populations. This is very important, because it is said that approximately 70% of all breast cancers are of the HR+/HER2- subtype. As you can see here, there is still plenty of room for sales growth here with respect to Verzenio.

The second drug that really helped Eli Lily out during Q2 of 2023 was Jardiance. Jardiance was approved by the FDA as an addition to diet and exercise to improve glycemic control in adults with Type 2 diabetes back in 2014. Since then, it has been able to receive additional FDA approvals for several other indications. For instance, these are other FDA approvals it received since then:

• To reduce the risk of cardiovascular death in adult patients with type 2 diabetes mellitus and cardiovascular disease - December 2016
• To treat adults living with heart failure with reduced ejection fraction - August 18, 2021
• To treat adults with heart failure regardless of left ventricular ejection fraction - February 24, 2022.

Sales of Jardiance for Q2 of 2023 reached $668.3 million, compared to the same time period in the prior year, whereby sales only reached $461 million. This was a year over year sales growth increase of the drug by as much as 45%. I believe that sales growth will continue here, because the Type 2 diabetes just by itself is large, not including the other indications that Jardiance was approved for. It is said that the global Type 2 Diabetes [T2D] market is expected to surpass around $61.6 billion by 2030 .

Besides the huge market opportunity that is possible here, there is something else to keep in mind for continued growth. That would be the fact that Eli Lilly received approval of Jardiance for another subpopulation of patients with T2D. That is, back on June 21, 2023, it was able to expand the label of this drug to include children 10 years and older with T2D. Both Eli Lilly and its partner Boehringer Ingelheim generated a first with this U.S. marketing approval, in that Jardiance is the first and only SGLT2 inhibitor approved for this specific T2D patient population.

Mounjaro Starts Off Strong And Sales Momentum Could Continue With Expansion Opportunity

The third drug in the pipeline that helped Eli Lilly to beat earnings and guide higher for 2023 is Mounjaro. Mounjaro has been able to do really well, in light of the fact that it only started to be sold in the market back in 2022. Matter of fact, it was approved by the FDA back on May 13, 2022, as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus. Despite only being on the market for roughly one year, sales have really skyrocketed. Initial sales of it in Q2 of 2022 were only $16 million, but since then have been able to grow significantly. Sales of Mounjaro in Q2 of 2023 reached $979 million. While it has only been on the market for at least 1 year, I think the point here is that it beat estimates of what was expected.

That is, it was expected that sales of Mounjaro would only reach $743 million in Q2 of 2023. I believe that this is the drug to watch in the coming years and its potential depends upon what happens in the coming months. That's because an FDA decision to approve Mounjaro for weight loss is expected towards the end of this year. Should it be approved as a drug for weight loss, then that would be really good for Eli Lilly.

Why is that? Well, such drugs can already be prescribed off label. However, without insurance covering the drug for patients, the costs are high. With an FDA approval being given, then insurance would be able to cover the cost of the drug for weight loss. Without insurance coverage, the price of the drug is $50,000 per year . Thus, without FDA approval, it will be difficult for someone to get the drug for weight loss. Regardless, you have seen above that with just FDA approval for T2D, it is performing very well.

I imagine that with the addition of a label of Mounjaro for weight loss, that sales should become even better. Especially, since it has been able to achieve approximately 16% in weight loss during clinical trials, which could end up being better than its rivals.

Financials

Eli Lilly really came through with respect to its Q2 of 2023 earnings. Again, it had to do with strong sales from several of its drug from its pipeline, which were Verzenio, Jardiance and Mounjaro. Excluding items, it was noted that the company had earned $2.11 per share during Q2 of 2023 , which was above analysts only expecting earnings per share to come in at $1.98. Not only did it beat on the top line of its earnings estimates, but it also beat on the bottom line as well. It was noted that total revenue during the quarter reached $8.31 billion, which easily beat expectations that it would only earn $7.58 billion in revenue. Eli Lilly also guided higher for its total 2023 revenues, in that it expects its annual revenue to be in the range of $33.4 billion - $33.9 billion. This, compared to the prior expected range of revenue for total year 2023 only coming in at $31.2 billion to $31.7 billion.

The increase in guidance all has to do with several of its products growing at a rapid pace, plus also the potential to increase sales for Mounjaro, should it be approved as a weight loss drug. However, there is another catalyst opportunity that could possibly boost revenues later on as well. There is a drug in its pipeline being developed known as donanemab, which is being developed to treat patients with Alzheimer's Disease [AD]. The global Alzheimer's therapeutic market size is projected to reach $13 billion by 2031 .

This is a huge market opportunity, for sure, and any pharma company to tap into it can expect huge sales. An FDA decision on whether or not to approve donanemab for the treatment of patients with Alzheimer's Disease is expected by the end of this year. Should it approved, it would be the first in its class of drugs on the market.

Risks To Business

There are several risks that investors should be aware of before investing in Eli Lilly. I believe that the growth sales trajectory of Verzenio, Jardiance and Mounjaro should continue. However, there is no assurance that the growth percentages will remain the same when the next set of earnings are announced several months from now. Which brings up the second risk and that is competitors in play.

Looking at Verzenio, there are two other drugs of the same class approved to treat patients with breast cancer. These would be Novartis ( NVS ) with Kisqali and Pfizer ( PFE ) with Ibrance. Thus, there is no guarantee that sales of Verzenio will continue to grow at the same percentage rate, especially with these other CDK4/6 inhibitors being in the same space. Not only that, but there is a possible resistance with this class of drugs. Thus, to counteract such resistance being observed with the CDK4/6 inhibitor class, there is a new class of drugs being developed to target CDK2 instead.

Jardiance has been holding strong, but there is no assurance that sales will continue, especially since Farxiga from AstraZeneca has been gaining ground in obtaining additional approvals in heart failure . Farxiga, like Jardiance, has been approved as an adjunct to diet and exercise to improve glycemic control in adults with Type 2 Diabetes mellitus.

I noted the expansion opportunity of Mounjaro above, but there are two risks at play here. First, it must pass the hurdle of FDA approval, which is expected later this year. Secondly, even if it approved by the FDA, then it will have to compete against Wegovy and Ozempic for weight loss. It won't be easy, but what Eli Lilly can possibly tout is that patients achieve greater weight loss when taking Mounjaro, compared to Ozempic. I see greater value with Eli Lilly just looking at its ability with Mounjaro alone, but there something it has even better than that. What exactly does this entail? The fact that another weight loss drug in its pipeline, known as retatrutide, helped patients lose an average of about 24% of their body weight [equivalent to about losing 58 pounds]. Such data was noted in a mid-stage study and this is another good candidate in Eli Lilly's pipe that should be considered for future growth.

There are two risks with respect to donanemab. The first risk to consider would be with respect to FDA approval, as there is no assurance that it will be approved for U.S. marketing. A second risk to consider for it, would be that it will be the third drug of its class to be approved by the FDA for AD [Should it ultimately be approved by the FDA by the end of this year].

On the flip side, donanemab offers something that the other drugs don't. What is that? A possible stopping point in having to take this drug for their disease. That's because once patients taking donanemab achieve a predetermined level of amyloid clearance from the brain, they go off the treatment. It was noted that about half of study patients who received this drug finished the course of treatment with it in less than 12 months . Then, about 72% of these patients completed their course of treatment by 18 months. Thus, the conclusion is that these patients may not need to take donanemab for the rest of their lives.

The fourth and final risk to consider would be with respect to a lawsuit that was filed by Nektar Therapeutics ( NKTR ). That's because Nektar filed a lawsuit believing that it was wronged with respect to the advancement of autoimmune disorder treatments . That is, with respect to a drug known as rezpegaldesleukin, which is being advanced for the treatment of patients with autoimmune disorders. The two companies had formed a partnership back in 2017 to advance such a candidate, but the complaint filed accuses Lilly of breach of contract, negligent misrepresentation, unfair competitor and other wrongdoing. Thus, Nektar believes that it is entitled to receive punitive damages and other remedies as well. It remains to be seen how this lawsuit plays out, but it is a risk to be aware of nonetheless.

Conclusion

The final conclusion is that Eli Lilly remains a strong buy. That's because there are just so many positives in the pipeline. The first of these is the continued growth sales trajectory of many strong drugs in the pipeline, such as Verzenio, Jardiance and Mounjaro. While some competitors are in play, sales growth continues to be strong in light of this.

Then, you have a few expansion opportunities as well. These would be with respect to the possible FDA approvals of Mounjaro for weight loss and donanemab for the treatment of patients with AD. It has not only beat its expectations for Q2 of 2023, but it has also guided higher for the rest of 2023 as well. Despite the rise in stock price after earnings, I believe that Eli Lilly and Company has potential to trade higher on the back of all recent and future developments to come.

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