Eli Lilly's rally on blowout Mounjaro sales signals a new leg higher for the stock

Published Thu, Nov 2 20232:40 PM EDT

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

Eli Lilly (LLY) issued strong quarterly results Thursday — fueled by blockbuster diabetes drug Mounjaro — that validated the stock's big run and amplified hopes that it's not done yet. Revenue in the third quarter totaled $9.5 billion, topping the $8.95 billion expected, according to LSEG, formerly known as Refinitiv. Adjusted earnings per share were 10 cents in the three months ended Sept. 30, exceeding the 13-cent loss projected by analysts, LSEG data showed. LLY YTD mountain Eli Lilly's year-to-date stock performance. Investors are understandably cheering the results, sending Eli Lilly shares higher by more than 4%. Even after its nearly 60% ascent this year, additional gains in the stock appear likely. Bottom line The case for owning Eli Lilly got stronger Thursday. "Eli Lilly today is beginning its next leg of going up," Jim Cramer said during Thursday's Morning Meeting . The most important line item was Mounjaro sales, which cleared Wall Street's high bar. The type-2 diabetes drug, with promise to also treat obesity, soared above the $1 billion mark in quarterly revenue for the first time. "You have to wonder what number they could've done if they had been able to get it for customers," Jim said, alluding to Mounjaro supply shortages that Eli Lilly experienced in the quarter amid fervent demand for the drug. On Thursday, Eli Lilly offered encouraging commentary around increasing Mounjaro manufacturing capacity ahead of its expected approval by U.S. regulators for weight loss. The Food and Drug Administration should issue that decision by year-end, Eli Lilly reiterated Thursday. The FDA approved Mounjaro for diabetes in May 2022. Jim has long said Mounjaro will become the best-selling drug of all time — a viewpoint he emphasized again Thursday — and securing obesity approval is necessary for that to happen. When given the green light as an obesity treatment, Mounjaro will compete with Novo Nordisk 's (NVO) Wegovy. It's already up against Novo's Ozempic in diabetes. On the other hand, the FDA's decision on Lilly's experimental Alzheimer's therapy , known as donanemab, should now come in the first quarter of 2024, the company said Thursday. Previously, Lilly expected an answer by the end of 2023. Eli Lilly's Alzheimer's efforts are also part of our investment thesis, but to a lesser extent than Mounjaro. We're not concerned about the delayed timeline for potential approval. In a CNBC interview , Lilly CEO Dave Ricks said Thursday the FDA needed more time to review all the data on donanemab. "It's a big package — one of the biggest ones we've ever submitted. ... No concerns about that, just more of the procedure is taking a little longer from their end," Ricks said. We're also looking past the noise around Eli Lilly's EPS in the third quarter, and the company's lowered full-year profit outlook. Usually, those would be troubling developments — but in this instance, the reason is tied to accounting rules about acquisitions. It's unsurprising given the buying spree Lilly has been on lately . Right now, the growth of Mounjaro revenue is what matters most for Eli Lilly's stock — and on this metric, the company delivered and offered assurances that there's still plenty more ahead. Quarterly commentary Eli Lilly's overall sales topped expectations, though the year-over-year growth rate of 37% is a bit skewed by a $1.42 billion contribution from the sale of commercial rights for antipsychotic medication Zyprexa. Excluding that divestiture and the $387 million in Covid antibody sales in the year-ago quarter, Eli Lilly's sales grew 24% on an annual basis — a highly respectable figure. Mounjaro yet again was Eli Lilly's No. 2 drug in the quarter, with revenue totaling $1.41 billion, ahead of the $1.28 billion expected by analysts and up 44% compared with the second quarter. We're making a quarter-over-quarter comparison here because the drug was just ramping up in the year-ago period. Management said on the call that Eli Lilly remains on track to double manufacturing capacity for Mounjaro by year-end, as production is underway at a large manufacturing site in North Carolina's Research Park Triangle area. Additionally, another manufacturing facility a few hours away in Concord, North Carolina, is scheduled to come online in 2024, Ricks said. U.S. supplies of Mounjaro have improved, management said. All doses of the drug are currently listed as available on an FDA website that tracks shortages, the company noted. Mounjaro supply remains tight outside the U.S. "This is really all hands on deck," Ricks said. "We are not at all happy with the capacity we've announced already. You'll see more," the CEO added, noting the company is working on additional methods of delivering the injectable drug that should allow for additional production. Fellow diabetes treatment Trulicity was still Lilly's best-seller in Q3. But even at over $1.67 billion, Trulicity revenue missed estimates and fell 12% quarter over quarter and dropped more than 9.5% from the year-ago period. The company said that more people in the U.S. were taking Trulicity, but the money Lilly earned on each prescription was lower due to factors including rebates and discounts. Outside the U.S., Trulicity was impacted by supply shortages. In fact, Lilly CFO Anat Ashkenazi said doctors have been told to refrain from starting new patients on the drug to ensure that people who have already been taking it don't see disruptions. Third-quarter sales of diabetes pill Jardiance — another key growth product for Lilly — came in a bit lighter than expectations at nearly $701 million. Analysts had been looking for sales of $765 million. In September, the FDA expanded Jardiance's label to include the treatment of chronic kidney disease. Guidance Eli Lilly expects full-year EPS of between $6.50 and $6.70 on an adjusted basis, down from its prior outlook of $9.70 to $9.90. The change reflects Lilly's recent string of acquisitions, which in the third quarter alone included Dice Therapeutics, Versanis Bio, and Emergence Therapeutics. The adjustment is a matter of accounting, not cause for concern as mentioned earlier, especially because those deals are intended to power additional revenue growth down the road. Lilly left its full-year sales outlook unchanged in the range of $33.4 billion and $33.9 billion. The Indianapolis-based pharmaceuticals giant maintained full-year gross margin guidance of approximately 80%. However, on the earnings call, Ashkenazi said the company is "trending toward the higher end of the estimate." Similarly, Eli Lilly is on pace to be at the top end of its guidance for research and development (R & D) spending, as well as marketing, selling and administrative expenses. Lilly is guiding for $8.9 billion to $9.1 billion in R & D expenses and between $7.2 billion and $7.4 billion in marketing, selling and administrative expenses. In the case of expenses, lower is generally better — but Lilly right now is spending to support clinical trials and multiple upcoming drug launches, so it's not too worrisome to see the company heading toward the top of those expense ranges. (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 . 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David Ricks, CEO, Eli Lilly

Scott Mlyn | CNBC

Eli Lilly (LLY) issued strong quarterly results Thursday — fueled by blockbuster diabetes drug Mounjaro — that validated the stock's big run and amplified hopes that it's not done yet.