Eli Lilly's guidance cut is about the strong dollar, not weakening fundamentals, CEO says

Published Tue, Nov 1 20227:10 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Eli Lilly (LLY) CEO David Ricks on Tuesday expressed optimism around the drugmaker's innovation pipeline Tuesday, a stance we share despite the Club holding's cluttered quarterly report issued earlier in the day . "The underlying fundamentals of the business are really strong," Ricks said in a CNBC interview with Jim Cramer. "Seventy percent of our revenue are relatively new products, and they grew 24% in Q3 in constant currency, so really strong operational performance in the quarter." Overall, the Indianapolis-based pharmaceutical giant's third-quarter sales and earnings topped analysts expectations. However, investors were disappointed by the company's lowered full-year revenue and profit outlook, sending shares down 2.6% to close at $352.58. While the stock closed well of its session lows of $340.75, we understood its decline Tuesday. This is especially true when considering the stock closed Monday at an all-time high, having been a major outperformer all year long. Lilly shares have gained more than 27.5% year to date, compared to the S & P 500 's 19% decline in 2022. Eli Lilly — which generates about 40% of its sales overseas — largely attributed the guidance cut to the strong U.S. dollar. Ricks said Eli Lilly expects a roughly $300 million headwind to revenue, based on current exchange rates, with "most of that flowing to the bottom line in Q4." With three quarters already reported, Eli Lilly now expects full-year sales to range between $28.5 billion to $29 billion and adjusted per-share earnings between $7.70 to $7.85. Prior guidance was for revenue between $28.8 billion to $29.3 billion and EPS of $7.90 and $8.05. New diabetes drug off to great start One of our biggest reasons for liking Eli Lilly is the company's new type 2 diabetes drug that's also shown promise as an obesity treatment . While regulatory approval for weight loss specifically could come in late 2023 or early 2024 , the drug is already being prescribed for diabetes. And so far, the launch is going better than anticipated. Not only did third-quarter revenue of $187 million top Street expectations, but Ricks told CNBC on Tuesday the drug — under the brand name Mounjaro — is coexisting well on the market alongside Trulicity, another one of the company's type 2 diabetes drugs. Mounjaro received FDA approval in May , while Trulicity was approved in 2014 . The drugs fall within the same class of drug, but Mounjaro has some additional innovations around incretin hormones. "Probably we've expected a little more cannibalizations than we've seen," Ricks said, referring to the idea that Mounjaro's debut on the market would cut into Trulicity sales. "Trulicity held up pretty well. Most of the growth of Mounjaro are new patients coming to this class from medicines that weren't working well for them with diabetes, so that's great news — class growth for us as we look forward with the outlook." Updates on Lilly's Alzheimer's trials In late September, we were encouraged by positive study results for an experimental, late-stage Alzheimer's treatment being co-developed by Japanese pharmaceutical firm Eisai and U.S.-based Lilly rival Biogen (BIIB). The reason? The drug is similar to one that Eli Lilly is working to treat the most common form of dementia. Both drugs seek to reduce accumulation on the brain of the amyloid beta protein . The results from the latest Eisai-Biogen study are, in fact, "great news for the field," according to Ricks, "because the field needs confidence that addressing the amyloid plaques can reduce the burden of Alzheimer's." "Our study is fully enrolled," Ricks added, while noting the FDA has agreed to review Lilly's Alzheimer's drug, called donanemab, through its accelerated approval pathway. "The data will start coming quickly here, and we hope by middle of next year we'll have definitive proof this is helping patients." (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