Cramer's Investing Club Profile: Eli Lilly has one of best pipelines in the drug industry

Published Mon, Jan 31 20224:21 PM EST

We think Eli Lilly (LLY) is one of the highest-quality drug companies in the market. A key part of the drugmaker's growth story is the strength of its recent launches. Since 2014, the company has brought 16 new medicines to the market, putting them on track to deliver their goal of 20 new medicines in a 10-year period. Of the 20 new drugs, seven are expected to have peak sales of at least $3 billion per year, meaning many are of "blockbuster" quality. Some of the big ones you may have heard of are Trulicity, Cyramza, Jardiance, Taltz, Olumiant, Verzenio, Emgality, Tyvyt, and Retevmo. Eli Lilly calls this group, which accounted for more than half of the company's core business revenue in 3Q21 as its "key growth products." Exciting pipeline When you are analyzing a drug stock it's important to focus on the current product lineup, but you also need to keep an eye out on the pipeline because that's the future. Lilly recently prioritized its R & D investment in three areas: obesity, age-related neurodegeneration—think Alzheimer's—and DNA or RNA based medicines. The first two areas represent huge unmet needs, and Eli Lilly has developed two medicines that have proven to improve patient outcomes. Those two projects—two of the most valuable the company has ever worked on—are donanemab, which is their Alzheimer's treatment, and tirzepatide, which is a new class of drug for type-2 diabetes and also weight loss. What makes now an exciting time to invest in LLY is that both drugs are expected to be approved by the FDA later in 2022. Margin expansion story Another reason why we like Eli Lilly is because of its great management team. They know how to execute and get the most out of their business. Over the last five years, Eli Lilly's operating margin has expanded nearly 1,000 basis points to 30%. And through 2030, management thinks they can expand margins even further to the mid-to-high 30s, depending on how much they invest in R & D. Potential catalysts Some near-term catalysts to look out for are the upcoming FDA approvals for tirzepatide and donanemab. Risk factors A few risk factors to consider are pipeline execution, unfavorable drug pricing rulings, and increased scrutiny of Alzheimer's treatments. Bottom line Unlike many of its peers who are navigating through challenging LOE (loss of exclusivity) cycles, Eli Lilly's growth story is durable and volume-driven due to the strength of its recent launches. The company also has one of the most exciting pipelines in the entire industry, headlined by two of the most valuable projects the company has ever worked on. Lastly, management's great track record of expanding margins has helped the company significantly outgrow its peers on earnings. (Jim Cramer's Charitable Trust is long LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

David Ricks, CEO, Eli Lilly

Scott Mlyn | CNBC

We think Eli Lilly (LLY) is one of the highest-quality drug companies in the market.