Eli Lilly (LLY) USD (CDI)

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Eli Lilly’s second quarter sales were up 38% to $15.6bn ($14.7bn expected) driven by volume growth in its GLP-1 medicines for diabetes and obesity, which more than offset a decrease in prices.

Operating profit rose 85% to $6.9bn ($6.2bn expected), as sales growth outpaced the increase in research & development costs and other expenses.

Full year revenue guidance was increased by $1.5bn to $60-$62bn. The underlying earnings per share outlook has improved from $20.78-$22.28 to $21.75-$23.00.

Separately Lilly announced late state clinical trial data for its once daily GLP-1 tablet orforglipron. The data wasn’t as good as some analysts were hoping for. But the trial met all of its targets and Lilly expects to submit applications for approval by the end of the year.

The shares were down 7.6% in pre-market trading.

Our view

Eli Lilly’ has delivered a forecast beating second quarter and a full-year guidance upgrade. But these positives were overshadowed by disappointment in clinical trial data released on the same day.

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 ongoing volume growth is testament to management’s efforts to resolve the issue. 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. It’s an issue we continue to monitor but, for now, Lilly’s sales momentum and grip on costs are still allowing margins to improve.

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 orforglipron’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.

Alongside the wider industry, investor sentiment towards Eli Lilly has been damaged by concerns over US tariffs. Plans are afoot to onshore production for all US products sales, but until further clarity emerges on the scale of pharmaceutical tariffs, there remains some risk to the downside.

We remain excited by the company's growth prospects, which merit a valuation at the top of the peer group. That, combined with a rapidly changing competitive and political landscape, means investors need to accept a higher chance of volatility.

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.

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 Refinitiv. 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. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Previous Eli Lilly updates