Eli Lilly & Co. (LLY) shares rise on improved financial outlook

Eli Lilly & Co. (LLY) shares rose more than 6 percent this morning after the pharmaceutical company increased its financial outlook for the current year and fiscal year 2021 mainly due to improved demand for key drugs.

The company projected adjusted earnings in the range of $7.45 per share to $7.65 per share for 2020, as compared to its previous outlook between $7.20 per share to $7.40 per share. The revised guidance was better than analysts’ average estimate of $7.24 per share.

Revenue is expected to come between $24.2 billion and $24.7 billion for 2020, above the consensus forecast of $23.95 billion.

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Moreover, Lilly anticipates adjusted profit in the range of $7.75 per share to $8.40 per share for 2021, and revenue between $26.5 billion to $28.5 billion. On the other hand, analysts were looking for adjusted earnings of $8.08 per share on revenue of $26.5 billion for the next fiscal year.

Separately, Lilly also announced on Tuesday that it will buy Prevail Therapeutics Inc. in a deal valued at around $1 billion, in an effort to include gene treatments for neurodegenerative disorders in its portfolio.

Prevail shares skyrocketed more than 81 percent in the mid-day trading Tuesday following the news.

Lilly will pay $22.50 for each share of Prevail. The offer price represents a hefty premium of around 80 percent from Prevail stock’s closing price on Monday. Lilly will also pay a contingent payment of $4 per share subject to the approval of first product from Prevail. The drug regulatory authorities in the U.S. and Europe have already granted fast track designation to several Prevail’s treatment.

Growth Prospects and Risks

Lilly distributes most of its products in the U.S. through wholesalers, which serve hospitals, pharmacies, and health care professionals. Its three key wholesale distributors include McKesson Corp., AmerisourceBergen Corp, and Cardinal Health. For markets outside the U.S, it promotes its products to healthcare providers mainly through online health care channels and sales representatives.

The company faces tough competition from rivals in the highly competitive pharmaceutical market where the success of any entity depends on several factors such as effectiveness, innovation, pricing, ease of use, and safety.

Lilly’s new products also face competition from the existing alternatives in the market developed by other brands, as well as from generic products. Its sales are always at risk. For instance, if rival companies roll out a new product at a lower price, Lilly’s sales can decline. So, it consistently needs to come up with innovative and affordable products with improved results to better compete against rivals.

Another key challenge for Lilly is to compete with generic pharmaceutical firms. The regulatory approval process in the U.S. and Europe exempts generics from expensive and time-taking clinical trials to show their product safety and efficacy. This usually allows generic makers to save costs and price its products well below the selling price of products manufactured by brands such as Lilly.

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Moreover, most public and private payers usually prefer generic drugs over their alternative brand-name products in their healthcare plans. Therefore, brand companies, like Lilly, must compete with generic substitutes of their products.

Quarterly Performance

Lilly did not meet analysts’ expectations in the last quarterly results it reported in October, partly due to pricing pressures on some of its leading products.

The company earned $1.54 per share for the third quarter, missing the consensus forecast of $17.1 per share. Revenue came in at $5.74 billion, up 5 percent from the comparable period of 2019, but missed analysts’ average estimate of $5.88 billion

Analysts Coverage

The consensus price target for Lilly stock is $180 per share, with a high price target estimate of $200, and a low price target estimate of $157.89. when it comes to recommendations, most analysts have a “Buy” rating for the stock.

Stock Performance

Lilly share price has increased more than 27 percent on a year-to-date basis, indicating that the company has performed well even in the difficult operating environment due to the pandemic. The 52-week range of the stock is $117.06-$170.75, while the company’s market value stands at nearly $160 billion.