Eli Lilly (LLY) USD (CDI)

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Eli Lilly’s first quarter revenue grew 45% to $12.7bn driven by volume growth in its diabetes and obesity injections, Mounjaro and Zepbound.

Operating income was up by 47% to $3.7bn despite a charge of $1.6bn relating to the accounting treatment of an acquisition.

Lilly still expects revenue growth of around 32% in 2025. Underlying operating margin guidance also remains unchanged. However the earnings per share guidance range has been reduced from $22.05-23.55 to $20.17 -21.67 with the downgrade driven by acquisitions accounting and investment losses.

The shares fell 4.3% in pre-market trading.

Our view

Eli Lilly’s growth has accelerated in the first quarter of the year but a downgrade to profit guidance dented sentiment on the day. Given this wasn’t down to operational performance we’re not too concerned. Today’s guidance does not reflect the potential for tariffs on the industry, but as a US based company we think its exposure to that risk is limited.

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.

Obesity’s reached epidemic proportions in the modern era. In the UK alone, the economic cost of obesity could be close to £100bn. There’s growing evidence that these medicines can effectively reduce and treat the associated health risks.

The boom in demand led to pressure on the firm’s manufacturing facilities, but attention is now turning to how quickly demand will take to catch up with recent expansions in capacity. 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.

There’s also a drive to bring the next generation of weight-loss wonder drug to the market. The company’s pace of development is impressive, but there’s plenty of competition to be wary of.

That has the potential to drive prices down and also adds pressure to develop new and improved products in the space. On that front the company’s making good clinical progress with its weight-loss pill orforglipron, but there’s still no guarantee of regulatory approval or commercial success.

It certainly doesn’t have all its eggs in one basket, though, and expects a growing contribution from a handful of new medicines this year. The company’s relatively aggressive when it comes to its Research & Development budget, and that’s helped to create a robust pipeline.

While there are no guarantees of further research success, it does provide a route to mitigate the industry-wide pressure of patent expirations where manufacturers eventually lose exclusivity over medicines. However, this is not as big an issue as it has been for Lilly. Its dominant positioning in certain disease areas and expertise in manufacturing help provide a competitive edge.

Overall, we’re excited by the company's growth prospects. But Lilly’s industry leading growth rates have earnt its valuation a premium rating, which means there’s little scope for disappointment.

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.

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