Lilly Assures Market As Diabetes Stumbles – Seeking Alpha

As the diabetes wars have raged, Eli Lilly's (NYSE:LLY) balanced portfolio has helped insulate it from the share price losses dealt to competitor Novo Nordisk (OTCPK:NONOF). But even Lilly can have an off quarter.

Trulicity's growth was more than offset by below-consensus sales for Basaglar and Jardiance - the underperformance of the last of these was surprising given that it has begun marketing on its cardiovascular benefit. When combined with last week's US rejection of rheumatoid arthritis entry Olumiant, these disappointments forced Lilly executives to reassure investors that the company's medium-term guidance of 5% growth could still be met.

Lilly shares fell 3% today following the release of first-quarter results, removing $2.7bn in market valuation. Since the Olumiant complete response letter was announced, shares have fallen 6% (Olumiant setback opens the door to rivals, April 18, 2017).

Bernstein analyst Tim Anderson chalked up some of the losses to profit-taking - before the Olumiant news, shares were up 16% on the year - but acknowledged the effect of Olumiant and diabetes revenue on investor sentiment.

Topline good

In the long view, the Indiana-based group had a positive quarter, with revenue of $5.2bn and earnings per share of $0.98 in line with investor expectations. However, having just got over the news of Olumiant - rejected because of questions over the most efficacious dose and safety characterization - news that diabetes was not necessarily firing on all cylinders was not taken well.

Expectations for Jardiance remain high since it is the first of the SGLT2 class to be allowed to market on the basis of averting cardiovascular death in diabetics, although it could very well be chased by competitors Invokana, from Johnson & Johnson, and Farxiga, from Astrazeneca (NYSE:AZN) (ACC - Jardiance heart benefit looks like a class effect, March 20, 2017).

Lilly diabetes chief Enrique Conterno characterized the SGLT2 class as having flat growth before the cardiovascular data was included on the Jardiance label, but said that since marketing on that claim has begun new patient starts have risen 70% - the miss on Jardiance sales may simply reflect a mismatch between investor expectations and market realities.

Olumiant's bigger setback has investors questioning the 5% revenue growth forecast given that the drug is one of four new products that will post annual sales growth of $1bn or more to counteract losses due to patent expiries. Finance chief Derica Rice offered some comfort: "We've factored in that we won't have 100% success on every molecule" when preparing that forecast, he said.

Olumiant's failure to add US revenue does, however, increase the pressure on the rest of the portfolio to meet sales expectations. And Lilly's exposure to the volatile diabetes space raises the risk that that will not happen.

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Lilly Assures Market As Diabetes Stumbles - Seeking Alpha