Promise around Eli Lilly's expected obesity drug, great earnings adds some $60 billion in market cap

Published Tue, Aug 8 20232:51 PM EDT

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

Eli Lilly (LLY) on Tuesday easily topped Wall Street's second-quarter estimates for earnings and sales. The star of the show, once again, is Mounjaro, the diabetes treatment that could soon be cleared by regulators for weight loss as well. The promise of Mounjaro to combat obesity, and possibly other conditions, took the stock to an all-time high and added more than $60 billion of market value. Revenue for the three months ended June 30 rose 28% year-over-year to $8.31 billion, far outpacing the $7.58 billion expected by analysts, according to Refinitiv. (When excluding one-time divestment contributions and last year's Covid antibody revenue, Lilly's sales rose 22% on an annual basis.) Adjusted earnings per share of $2.11 beat the $1.98 consensus estimate and exceeded last year's second-quarter EPS by nearly 69%. Bottom line Club name Eli Lilly not only reported a stellar second quarter but got a lift to its long-term prospects in the form of new data on a diabetes and weight-loss drug from competitor Novo Nordisk (NVO). Lilly's multiyear outlook, led by Mounjaro, appears even brighter, and the company is making wise investments to support that growth. Novo Nordisk's trial results regarding a reduction of the risk of some cardiovascular problems — discussed in greater detail later in this story — are expected to strengthen the health-insurance reimbursement case for obesity drugs like its Wegovy and Lilly's Mounjaro . Getting broad reimbursement has long been seen as crucial for those drugs to reach their full commercial potential. As a reminder: Wegovy is already approved by U.S. regulators for obesity, while Mounjaro is expected to gain that additional approval by year-end. Mounjaro — which currently is only cleared as treating type-2 diabetes — showed impressive momentum in the second quarter, with sales reaching $980 million. That crushed Wall Street's estimates by more than $200 million and narrowly exceeded what analysts projected for the third quarter. Together, these developments further support Jim Cramer's contention that Mounjaro will become the best-selling drug of all time , assuming U.S. regulators expand its use to include obesity. "I reiterate that's exactly what's happening," Jim said Tuesday morning. Eli Lilly shares soared more than 16% to a new all-time high during Tuesday's session. We maintain our 2 rating , meaning we don't want to chase it up and would wait for a pullback before adding to our position. Our $460 price target is under review. LLY YTD mountain Eli Lilly's stock performance so far in 2023. Guidance For the second straight quarter, Eli Lilly raised its full-year sales and adjusted earnings outlook. The Indianapolis-based drugmaker now sees 2023 revenue between $33.4 billion to $33.9 billion, up from its prior guidance between $31.2 billion and $31.7 billion. The midpoint of the new forecast — $33.65 billion — is about 7% above Wall Street's full-year sales estimate, according to FactSet. Eli Lilly said roughly two-thirds of the $2.2 billion revenue guidance increase is tied to the previously announced sale of the commercial rights for antipsychotic Zyprexa , which were acquired by German firm Cheplapharm — and the divestment of Baqsimi , a nasal spray used to treat low blood sugar, to Amphastar Pharmaceuticals. The remaining $700 million increase to the revenue guidance reflects "strong underlying business performance," Lilly said. Eli Lilly now expects adjusted earnings per share between $9.70 and $9.90, up significantly from the old guidance between $8.65 and $8.85. Wall Street expected adjusted full-year EPS of $8.73, per FactSet. The company also raised its marketing, selling and administrative expense outlook, which now stands between $7.2 billion and $7.4 billion for 2023. That's up from between $7 billion and $7.2 billion. Lilly's finance chief Anat Ashkenazi said on the post-earnings call that the increase is tied to commercial product launches slated for later this year. Additionally, Lilly said research and development costs are expected to fall within the range of $8.9 billion and $9.1 billion, up from between $8.3 billion and $8.5 billion. The jump in R & D spending is related to additional clinical trials to support their next-generation products, Ashkenazi said. Overall, she said, Lilly sees a "tremendous opportunity for continued investment in a very successful pipeline." Second-quarter commentary Mounjaro's better-than-expected sales were the highlight of Eli Lilly's report. The call offered even more encouraging information — most notably, that manufacturing has begun at the company's North Carolina facility to increase the supply of Mounjaro. Over the next few months, "unprecedented demand" for the drug is likely to still cause sporadic shortages, acknowledged the president of Lilly Diabetes, Michael Mason. But as production in North Carolina ramps up, Mason said the expectation is that will help eliminate supply constraints. Management also expressed satisfaction with the growth of daily type-2 diabetes pill Jardiance and breast-cancer treatment Verzenio. Second-quarter sales of Jardiance rose 45% year over year to $668.3 million, topping the $627 million expected by analysts. Verzenio revenue increased by 57.5% to $926.8 million, compared with estimates of $911 million. The one key product to miss quarterly sales expectations was Trulicity, a type-2 diabetes treatment that some patients stop taking in favor of Mounjaro. Trulicity saw second-quarter sales of $1.81 billion, down 5% year over year and short of the $2.04 billion projected by analysts. Lilly attributed the weakness to lower realized prices both in the U.S. and internationally. Addressing concerns about cannibalization, Mason said about 13% to 14% of patients on Mounjaro switched from Trulicity, roughly the same since Mounjaro launched in June 2022. Impact of Novo study In a much-anticipated study , which we've previewed several times, Danish firm Novo Nordisk on Tuesday said its weight-loss therapy Wegovy cut the risk of a major cardiovascular event, such as strokes and heart attacks, by 20% in drug recipients compared with those who took the placebo. The late-stage trial, known as the Select study, involved about 17,600 people aged 45 and older with no history of diabetes who are overweight or obese and have cardiovascular disease. Investors in Novo and Eli Lilly had been awaiting the Select study's results, in hopes that favorable results could bolster the commercial future for the companies' expensive GLP-1 drugs, which include both Wegovy and Mounjaro. The thinking has been that if GLP-1 therapies can demonstrate an ability to not only cause patients to lose weight but improve other health outcomes, there's a better argument for insurance companies to more broadly cover the drugs for obesity indications. Indeed, that's what we got Tuesday. Mason, Lilly's head of diabetes, said health insurers are unlikely to immediately start covering GLP-1s for obesity in light of the Select results. That may take more time. But the results are "great for the anti-obesity medication class," and they should help draw greater emphasis to the overall health benefits that weight loss can provide, he added. For its part, Eli Lilly is also studying Mounjaro's impact on other health outcomes including cardiovascular events. The company has a late-stage trial involving patients with type-2 diabetes that's estimated to be completed in October 2024. — Programming note: Eli Lilly CEO David Ricks will be a guest on Tuesday evening's "Mad Money." (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.

Eli Lilly and Company, Pharmaceutical company headquarters in Alcobendas, Madrid, Spain.

Cristina Arias | Cover | Getty Images