The high-quality problem of too much demand can be overcome by Eli Lilly

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Eli Lilly ‘s raised guidance stole the show Tuesday, offsetting mixed first-quarter results and propelling shares higher by nearly 6%.
Eli Lilly Why we own it: Eli Lilly’s best-in-class drugs should enable growth above the industry average for many years to come.
At their highs of the morning, shares of Eli Lilly traded above their all-time closing high of $792.28 set on March 4.
“Our top priority is making more product,” Eli Lilly CEO Dave Ricks told CNBC earlier Tuesday.
Guidance Eli Lilly now expects full-year sales between $42.4 billion and $43.6 billion, up $2 billion at both ends of the range.
Eli Lilly also boosted its adjusted operating margin outlook to between 33% and 35%, up from 31% to 33%.
In general, the more-bullish financial outlook helps make Eli Lilly’s high price-to-earnings ratio coming into earnings more tolerable for investors.
Brendan McDermid | Reuters Eli Lilly ‘s raised guidance stole the show Tuesday, offsetting mixed first-quarter results and propelling shares higher by nearly 6%.


Elevated guidance from Eli Lilly stole the show on Tuesday, driving shares up almost 6% and offsetting mixed first-quarter results. With demand exceeding supply for its new diabetes and obesity medications, Mounjaro and Zepbound, Eli Lilly’s long-term success story is undeniably intact. LSEG’s estimates show that revenue for the three months ended March 31 increased by 26% year over year to $8.77 billion, falling short of analysts’ expectations of $8.92 billion. According to LSEG data, adjusted earnings per share for the first quarter exceeded the consensus estimate of $2.46 to $2.58. Eli Lilly: Why we own it: For many years to come, growth above the industry average should be possible thanks to Eli Lilly’s best-in-class medications. The GLP-1 franchise, which presently includes Zepbound for obesity and Mounjaro for type-2 diabetes, serves as the portfolio’s cornerstone. Treatment options for other conditions like sleep apnea and lowered stroke risk are possible with this rapidly expanding class of medications. Lilly’s Alzheimer’s treatments in trials contribute to the stock’s long-term attractiveness. Rivals: Novo Nordisk, Biogen, Eisai, Merck, and Pfizer; Weight in portfolio: 2.7 percent; most recent purchase: February. 7, 2023 Commencement: October. Eli Lilly met all the requirements that long-term investors look for, including membership in the Club, so it’s not surprising that the stock is experiencing one of its best days of the year on August 8, 2021. Eli Lilly’s stock rose above its all-time closing high of $792.28, which was set on March 4, at the morning’s highs. Because both Mounjaro and Zepbound contain tirzepatide as an active ingredient, demand for them is through the roof. But, managing the intricate and costly process of increasing injectable drug production capacity to ease supply constraints is just as crucial. For Lilly to reach the high growth expectations set by Wall Street, that has to occur. Jim Cramer described the situation involving Mounjaro and Zepbound demand exceeding supply by far on Tuesday, calling it the “highest-quality problem.”. Eli Lilly’s stock performance over the last five years in comparison to the S and P 500 is shown in LLY .SPX 5Y mountain. Through the second half of 2024, Eli Lilly anticipates significant growth in Zepbound and Mounjaro shipments. Because of this, the management has been able to calm concerns about the first-quarter results by raising its guidance for full-year revenue and profit less than three months after it was first provided. Jim said, “I like everything I heard” from Eli Lilly on Tuesday. Jim has long maintained that tirzepatide has the potential to become the all-time best-selling medication. Nothing in the report released on Tuesday, in fact, lessens the chance that will occur in the future years. We are sticking with our $2 rating and $850 price target for the stock. Quarterly analysis In the country’s first complete quarter, the U. s. market, Zepbound sales exceeded Wall Street forecasts, coming in at $517.4 million for the three months that ended in March as opposed to estimates of $373.03 million, as reported by FactSet. On the call following the results, CFO Anat Ashkenazi stated that Zepbound’s insurance coverage, which is vital to the company’s long-term financial success, is “rapidly” getting better. Zepbound’s market share in the commercial insurance sector increased to roughly 67 percent as of April 1 from roughly 33 percent in February. 1. The business claims this. US approved Zepbound. s. regulators at the beginning of November and appeared on pharmacy shelves a few weeks later. Zepbound generated revenue of roughly $176 million during the fourth quarter. Mounjaro’s first-quarter sales more than tripled to $1.81 billion, but they fell short of Wall Street projections. Considering the limitations on supply, that is hardly shocking. Sales of Trulicity, Lilly’s other GLP-1 for type-2 diabetes, fell 26% to $1.46 billion. Additionally, revenue projections were not met. Trulicity has shortages, just like Zepbound and Mounjaro. In the past, some patients have also switched from Trulicity to Mounjaro. A database maintained by the Food and Drug Administration indicates that limited availability is anticipated for the majority of Zepbound and Mounjaro doses through the end of the second quarter in June. All three medications are once-weekly injectables, and patients increase the dosage amount over the course of treatment. Trulicity, which was first approved almost ten years ago, follows a similar schedule for the majority of doses. Ashkenazi stated during the call that the “unprecedented demand” for Eli Lilly’s so-called incretin medicines, which include Zepbound, Mounjaro, and Trulicity, is a factor in the shortages. “We anticipate that the ability to produce and ship larger quantities will be the primary factor driving sales growth in the short to mid-term,” the spokesperson stated. The amounts are still expected to rise. Ashkenazi stated that Eli Lilly is still on track to produce incretin doses in the second half of 2024 at a rate of roughly 1.5 times that of the same time the previous year. According to Ashkenazi, the business is building or expanding six production facilities. It disclosed last week an agreement to buy a seventh facility, situated in Wisconsin, from Nexus Pharmaceuticals. Eli Lilly predicts that by year’s end, production might start there. Novo Nordisk, the company that makes Ozempic and Wegovy, is Eli Lilly’s primary rival in the GLP-1 market and is also making significant investments to address medication shortages. Eli Lilly CEO Dave Ricks told CNBC earlier on Tuesday, “Making more product is our top priority.”. “We’re exerting every effort to accomplish that. This is one of the most intricately designed medications we have ever produced. In addition, Eli Lilly stated that the FDA advisory panel has not yet set a date for reviewing the efficacy and safety of its experimental Alzheimer’s treatment donanemab. The management has reiterated their belief that the medication can slow the disease’s progression and restore memory, but it is anticipated to happen in the middle of the year. Earlier in the month of March, Eli Lilly had anticipated receiving regulatory approval. Guidance: Eli Lilly has increased its full-year sales projections by $2 billion to $42 billion to $43 billion. Its updated outlook for adjusted earnings per share is between $13.50 and $14.00, up from the previous range of $12.20 to $12.70; at the midpoint, that represents a 10% increase. Eli Lilly increased its forecast for adjusted operating margin from 31 percent to 33 percent, or between 33 and 35 percent. According to a release from the company, “greater visibility” into Eli Lilly’s production expansion plans and the impressive performance of Zepbound and Mounjaro were the driving forces behind the changes. You would want Lilly to hike guidance for precisely those reasons. Generally speaking, investors find it easier to accept Eli Lilly’s high price-to-earnings ratio going into earnings thanks to the improved financial outlook. Eli Lilly maintained its tax rate and other income projections for the entire year. There is no quarterly guidance provided by the company. (LLY is a long position in Jim Cramer’s charitable trust. A complete list of the stocks can be found here. Before Jim makes a trade, you will receive a trade alert as a subscriber to CNBC Investing Club with Jim Cramer. Jim holds off on buying or selling a stock in the portfolio of his charitable trust for forty-five minutes following the sending of a trade alert. Jim must wait 72 hours after sending out the trade alert before making the trade if he has discussed a stock on CNBC TV. THE PRIVACY POLICY, TERMS AND CONDITIONS, AND DISCLAIMER ALL APPLY TO THE INFORMATION ABOVE ABOUT THE INVESTING CLUB. 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 PARTICULAR RESULTS OR PROFITS ARE WARRANTED.

Reuters/Brendan McDermid.

Tuesday’s big news came from Eli Lilly’s increased guidance, which helped to drive up shares by almost 6% and offset the company’s mixed first-quarter results. With demand exceeding supply for its new diabetes and obesity medications, Mounjaro and Zepbound, Eli Lilly’s long-term success story is undeniably intact.

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