Eli Lilly is the best of both worlds — a recession-resistant stock with major growth potential

Published Wed, Jan 11 20234:36 PM ESTUpdated Wed, Jan 11 20234:44 PM EST

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

The year ahead is pivotal for Eli Lilly (LLY) as the pharmaceutical giant looks to advance drugs in its stellar pipeline. Executives detailed reasons for optimism at a major industry gathering this week. "We're looking at another unprecedented year for Lilly," CFO Anat Ashkenazi said Tuesday night at JPMorgan's annual health-care conference. "A strong year ahead of us in terms of potential launches and top line growth," she added. "It's a year of investment, as well." It's projected to be a record year for both Lilly's revenue and research and development (R & D) expenses. It's a dynamic that, in many ways, embodies the Club's thinking on Eli Lilly, one of our 10 core holdings . It's the best of both worlds for investors. On the one hand, it's a defensively oriented health-care company that can work in today's challenging market environment, with an underlying business that's resilient even in an economic slowdown. Lilly announced full-year guidance last month, forecasting 2023 sales between $30.3 billion to $30.8 billion, up about 6% at the midpoint compared with projected revenue for last year. Lilly is expected to report fourth-quarter 2022 financial results in early February. Revenue is expected to grow even faster, in the mid-teens on a percentage basis, for the company's core business, which includes newly launched products like tirzepatide, a type 2 diabetes treatment marketed under the brand name Mounjaro. Tirzepatide has also shown immense potential in studies to combat obesity. On the other hand, Eli Lilly is also an exciting innovation story, partially reflected in its increased R & D spending — forecasted in that December update to be between $8.2 billion to $8.4 billion in 2023, up around 15% at the midpoint compared with estimated 2022 levels. This spending is required to advance its drug pipeline — a key piece of the Club's investment thesis — and boost revenue for years to come. Indeed, as Ashkenazi explained at the JPMorgan conference, the largest driver of R & D expenses is late-stage trials known as Phase 3 studies. Lilly has a lot on tap in that department this year. This includes the expected start of Phase 3 trials for orforglipron. That's a diabetes drug seeking to improve blood sugar control that, crucially, can be taken as a pill — unlike Mounjaro, which requires injection. Additionally, Lilly is recruiting patients for a Phase 3 study of its next-generation Alzheimer's drug, remternetug. It will take time for those trials to generate results, part of the longer-term investment view. In the meantime, Eli Lilly is set to release Phase 3 data for a number of different studies in 2023. Those fall under the category of near-term catalysts for the stock, which rose nearly 37% over the past 12 months. LLY 1Y mountain Eli Lilly's stock performance over the past 12 months. Investors are especially anticipating Lilly's Phase 3 trial results that examine tirzepatide as a weight-loss treatment. Eli Lilly has already asked U.S. regulators to expand the drug's approved uses to obesity, in addition to being sold as Mounjaro for type 2 diabetes. Successful Phase 3 results — expected early this year — are the next part of that rolling submission process. If all goes well, the Food and Drug Administration could allow tirzepatide to be marketed for weight loss later this year. That would be a major step forward for tirzepatide to reach its commercial potential, with some analysts suggesting it could become the best-selling drug of all time. The Club agrees . Another highly anticipated data release this year is for donanemab, an early Alzheimer's drug that is similar to a competitor's treatment that received conditional FDA approval last week . Donanemab does not carry as much weight in the Club's investment thesis as tirzepatide. Nevertheless, the drug would be a breakthrough for the company, which has spent decades working on the memory-robbing disease . "We have to be humble in Alzheimer's disease and wait for the data," Lilly's chief scientific and medical officer, Dr. Dan Skovronsky, said at the JPMorgan conference. "But I've never been more excited and I can't wait to see that data in the middle of this year." More broadly, Skovronsky said, "I think we're in a remarkable period of productivity for R & D at Lilly. We're super proud of what we've accomplished, but we're also paranoid about what's next." He added, "We're still pushing in the early stages to make sure we can have a sustainable growth enterprise here. We don't take that for granted." 'Next five' The number five was a thread that ran through Lilly's commentary at the conference. Skovronsky spoke about "the big five" drug launches expected this year and "the next five," which are part of the next generation of treatments further down the road. Some of those were already mentioned, but it's worth putting them in context with the complete roadmap because they will be in the news in the future. The five launches expected in 2023, according to Skovronsky: Tirzepatide, previously mentioned for obesity Donanemab for early Alzheimer's, as talked about earlier Pirtobrutinib , a treatment for cancers such as chronic lymphocytic leukemia Lebrikizumab , an antibody to treat moderate-to-severe atopic dermatitis Mirikizumab , a drug for an inflammatory bowel disease known as ulcerative colitis "Even though we have such a young portfolio with new launches, we already see the next generation of innovation behind that with five more molecules coming behind these big five," Skovronsky said. The "next five," according to Skovronsky: Once-weekly insulin Remternetug , the aforementioned next-gen Alzheimer's drug Imlunestrant , an oral breast cancer drug Orforglipron , the oral diabetes drug discussed earlier Retatrutide , an injected obesity treatment (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. 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Traders work beneath monitors displaying Eli Lilly signage on the floor of the New York Stock Exchange.

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