Eli Lilly Earnings: Solid Results and Strong Mounjaro Data Set Up Robust Long-Term Growth Potential

Eli Lilly Stock at a Glance

• Fair Value Estimate: $289.00
• Morningstar Rating: 2 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide

Eli Lilly Earnings Update

Eli Lilly LLY reported solid first-quarter results slightly below our projections, and we don’t expect any major changes to our fair value estimate. In tandem with earnings, Lilly disclosed strong phase 3 Mounjaro data (Surmount 2) reflecting 15.7% average weight loss on the highest dose. The strong data reinforces our peak annual sales estimate for the drug above $18 billion for both weight loss and diabetes.

While Lilly is well positioned to post industry-leading growth over the next five years, reinforcing its wide moat, we remain concerned on the firm’s valuation. Any missteps with Mounjaro or Alzheimer’s drug donanemab, for which key phase 3 data is expected this quarter, could have an amplified negative impact given the high valuation of the company.

In the quarter, total sales increased 10% excluding COVID-19 treatment sales. We expect a continued robust growth rate, driven by Mounjaro, in the current diabetes indication and also with the expected U.S. approval for the weight loss indication in late 2023 (supported by a priority voucher). Despite our high Mounjaro projections, upside to our expectations could drive our valuation higher. However, we expect challenges to broad reimbursement, increasing competition, and payer restraints to partially limit the drug’s potential.

Lilly’s remaining portfolio is holding up well, but some deceleration with key products may occur. Cardiometabolic drug Trulicity should post more gains but is likely starting to lose new patient share to Mounjaro. Cancer drug Verzenio is poised for more gains, but Novartis’ competitive drug Kisqali recently posted strong data in adjuvant breast cancer, setting up headwinds to Verzenio. Also, while we don’t expect major sales declines for the firm’s insulins due to the announced 2024 price reduction, given that rebates will likely take most of the hit, there will likely be some minor pressure on insulin sales.