Buying Eli Lilly Today
“Don't bet on the end of the world, it only happens once and the odds are against you"
-Art Cashin (Director of Floor Operations, UBS Financial Services)
The Portfolio Performance
The portfolio is UP +8.84% YTD
The S&P 500 is UP +7.29% YTD
Adding to Eli Lilly
Today I added 20 shares to the Eli Lilly position. I had a WATCH $341 note on the stock and picked up the shares at $338.31.
Over the past twelve months, Eli Lilly has risen 37.98% compared to the industry average of 14.5%. With Lilly’s broad product portfolio and exciting pipeline, I’m looking to acquire more shares for the Stay Invested Portfolio. Here’s my thinking.
Eli Lilly received a letter from the FDA for their Alzheimer’s candidate donanemab, stating that the rejection happened "due to the limited number of patients with at least 12 months of drug exposure data provided in the submission." It's not a negative for the business, especially considering why Eli Lilly didn't have enough data for the FDA. The FDA required 100 patients who were dosed for at least 12 months. While Lilly had more than 100 patients being treated, due to the speed of plaque reduction, many patients were able to stop treatment after six months. An effective Alzheimer’s drug is one of the holy grails in the pharmaceutical industry, but for patients to obtain coverage for the treatment from Medicare, the drug must go through ‘traditional’ approval, not an accelerated approval. Biogen is a classic example of how a medicine that received accelerated approval didn’t cause the stock to rally because investors know that patients can’t afford the treatment unless Medicare provides coverage. As an investor, this isn’t an issue; in fact, the selling of the stock is now a significant opportunity to buy at lower prices.
Eli Lilly should have data from their phase 3 study sometime in the second quarter of 2023. The data from the phase 3 study should be sufficient for the FDA to grant full approval.
Even if the FDA does not approve Lilli’s Alzheimer’s drug, we should still look closely at the rest of the business.
In January 2023, Lilly announced FDA approval of pirtpbrutinib, a BTK inhibitor for treating refractory mantle cell lymphoma, to be marketed under the name Jaypirca. Lilly’s Q4 numbers should show higher volume for Trulicity, Taltz, Verzenio, Jardiance, and Emgality, all significantly contributing to top-line revenues. Mounjaro and Retevmo should have opened some doors for new sales. Mounjaro, a type-2 diabetes drug being evaluated for weight loss in obese adults, has the potential with that label expansion to become the biggest selling drug in history. And let’s not lose sight of the societal benefit of reducing adult obesity and improving the lives of many people with diabetes.
Consensus estimates for revenues on Lilly’s existing drugs may be a bit high due to changes in rebates and discounts, especially in China. We also must discount for currency headwinds. Several of Lilly’s established drugs may have declined in the last quarter due to competition from generics and alternatives.
Lilly expects 2023 revenues to be between $30.3 billion and $30.8 billion, while adjusted earnings per share are expected to be between $8.10 and $8.30. I’ll be looking for Lilly to remain in line or surprise to the upside on the guidance for 2023. I’m also holding back on some dry powder to buy more shares in case the numbers are a miss.
Lilly acquired Akous in Q4 2022, a company developing gene therapies for hearing loss and inner ear conditions. I’ll be looking for an update on that acquisition on the earnings call.
Let’s look at some numbers. Eli Lilly pays a 1.32% dividend or $4.52 per share annually for investors willing to wait. Revenue guidance is currently $30.3 to $30.8 billion in 2023; any new guidance up will be appreciated by investors. Making new drugs is expensive, so we have to look at margins. Lilly’s last report showed a 76% gross margin on revenue, and analysts are expecting 77% at the next earnings call. Lilly’s trailing P/E of 51.44 is expensive, but the forward P/E of 40.49 shows improving earnings worth paying the premium. With a short percentage of float at only 0.62% and a Beta of only 0.38, there’s not much risk of Lilly becoming volatile. Analysts expect earnings to grow 8.20% and revenue to grow 6.90%, which is not something to write home about. When I look closer at analysts’ projections, they are not yet accounting for the pipeline that could launch four significant new drugs in 2023. Four drugs addressing Alzheimer’s, Crohn’s, Atopic Dermatitis, and Mantle Cell Lymphoma would be a significant accomplishment worth the stock’s premium multiple. On top of these four areas, investors are awaiting a possible label expansion to address obesity.
Consensus price targets are a low of $268, the consensus is at $388.95, and a high of $440. My projection is $456.76 over the next 12 months. My projection suggests a 33.2% increase, and I’m willing to wait for that return.
ACTION
LLY BUY 20 @ $338.21
Keep Me Honest 2023
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay Baker
ENTER YOUR NAME & EMAIL ADDRESS TO SUBSCRIBE
Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Rule #11: Investing is easy. Waiting is hard; waiting is the hardest part.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
AMD, AMRN, AMZN, AAPL, ARKK, ARKG, CNRG, ENPH, FB, GNRC, GBTC, GLD, HRTX, HD, IPOD, MSFT, NVDA, PSTH, TWLO, VBIV
I am invested short in these securities mentioned in this post:
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
