Eli Lilly reported 54% revenue growth for the third quarter to $17.6bn ($16.0bn expected) reflecting strong demand for its GLP1 therapies for diabetes and obesity counteracting downward pricing pressure in the United States.
Operating income increased from $1.5bn to $7.4bn flattered by a $2.2bn reduction in accounting charges relating to the cost of research and development acquired through acquisitions. However, revenue growth and an improving gross margin also had a part to play.
Clinical highlights include several late stage read outs for its GLP1 pill orforglipron, with a regulatory submission expected this year.
Full year revenue guidance was increased from $60-$62bn to $63.0-$63.5bn. The underlying earnings per share (EPS) outlook has improved from $21.75-$23.00 to $23.00-$23.70
The quarterly dividend was up 15% to $1.50 per share.
The shares were up 3.9% in pre-market trading.
Our view
Eli Lilly has delivered another set of forecast-beating results and its second guidance upgrade of the year. Add in a positive outlook for the approval of its GLP1 pill, it’s no surprise to see a further injection of investor confidence. However, as with all drug development there can be no guarantee.
The global pharmaceutical company is one of the trailblazers helping to revolutionise treatments for hormone deficiencies such as diabetes. But sales of these treatments (namely a class of medicine known as GLP-1) have also been grabbing attention for their effectiveness as a weight management tool. Its medications stack up well against the competition, which is helping the company grow its market share.
The boom in demand led to pressure on the firm’s manufacturing facilities, but this now looks to be resolved, with the addition of new US facilities a positive when it comes to staying on the right side of tariffs. Launches in new markets and approvals for use in other disease areas are significant opportunities for Lilly’s lead GLP-1 compound. But both of these growth levers carry a high level of execution risk.
Both competitive and political forces are putting downward pressure on prices. However, its efficient operations and relatively competitive stance on pricing coming into 2025 have held it in good stead so far this year.
Further down the line Lilly’s experimental weight-loss pill orforglipron could hit the market next year but there can be no guarantees. Meanwhile, there have been some doubts raised about its commercial appeal. Investor sentiment is likely to remain sensitive to the drug’s progress, but also developmental updates from competitors in what has become a very crowded space.
The company’s generous Research & Development budget has helped to create a robust pipeline, not only in cardiometabolic health, on which GLP-1s focus, but also in cancer, neuroscience and auto-immune conditions.
While research success is never guaranteed, it does provide a route to mitigate the industry-wide pressure of patent expirations, where manufacturers eventually lose exclusivity over medicines.
We remain excited by the company's growth prospects, which merit a valuation at the top of the peer group. However, the valuation hasn’t quite kept pace with the improvement in earnings expectations which means there could be significant upside on offer if Lilly delivers. That said a rapidly changing competitive and political landscape, as well as high expectations for the approval of orforglipron, means there’s still room for ups and downs.
Environmental, social and governance (ESG) risk
The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, Eli Lilly’s management of ESG risks is strong. Executive pay is linked to climate-related targets, but the exact mechanism is unclear. Similarly, there are no targets or deadlines set for improving employee diversity and engagement. Its initiatives related to value-based healthcare, as well as ensuring access to its medicine in developing countries, are considered adequate. Disclosure of clinical trial data is strong, but information about quality control in medical manufacturing could be clearer. The company is the subject of several lawsuits alleging anti-competitive practices in the pricing of insulin.
Eli Lilly key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.