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Why Investors Didn't Like Lilly's Q1 Results

By Keith Speights - Apr 27, 2021 at 11:32AM

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Misses on both the top and bottom lines weren't the only reason the big drugmaker's first-quarter update was disappointing.

Eli Lilly (LLY 0.91%) has delivered quite a bit of bad news in recent weeks. The U.S. Food and Drug Administration (FDA) delayed its review of Lilly's regulatory filing for Olumiant in treating atopic dermatitis. The drug flopped in a late-stage study targeting COVID-19. An FDA advisory committee recommended against approval of osteoarthritis pain drug tanezumab. 

And now the big drugmaker has even more bad news. Lilly announced its first-quarter results before the market opened on Tuesday. Those results disappointed investors, and the pharma stock slipped more than 3% in early trading. Here are the highlights from Lilly's Q1 update.

Lab worker using micro pipette in lab.

Image source: Getty Images.

By the numbers

Lilly reported revenue of $6.81 billion in the first quarter, a 16% year-over-year jump. This result, though, fell short of the average analyst estimate of $7.02 billion.

The company announced Q1 net income of $1.36 billion, or $1.49 per share, based on generally accepted accounting principles (GAAP). In the prior-year period, Lilly generated GAAP earnings of $1.46 billion, or $1.60 per share.

Lilly posted adjusted net income of $1.7 billion, or $1.87 per share. That result reflected solid improvement from the adjusted earnings of $1.5 billion, or $1.61 per share, recorded in the prior-year period. However, it still missed the Wall Street consensus adjusted earnings estimate of $2.14 per share.

Behind the numbers

There was a lot to like about Lilly's Q1 results despite the drugmaker missing analysts' top- and bottom-line estimates. In particular, the company's COVID-19 antibody therapies contributed over $810 million in sales, helping boost year-over-year comparisons.

Lilly's top-selling diabetes drug Trulicity kept up its winning ways, with Q1 sales jumping 18% year over year to $1.45 billion. Other products also delivered strong growth, including autoimmune disease drug Olumiant, migraine drug Emgality, cancer immunotherapy Tyvyt, and breast cancer drug Verzenio.

However, Lilly also faced some headwinds in the first quarter. Sales for insulin products Humalog and Basaglar fell 11% and 19%, respectively. Autoimmune disease drug Taltz, which used to be a solid growth driver for Lilly, experienced a year-over-year sales decline of 9% due primarily to increased rebates for the drug. Sales for osteoporosis drug Forteo sank 27%.

The company's GAAP bottom line was negatively impacted by two items. Lilly recognized $299.3 million of acquired in-process research and development charges in the first quarter related to deals with several partners. It also recorded asset impairment, restructuring, and other special charges totaling $211.6 million related primarily to its sale of rights to excessive sweating product Qbrexza and its acquisition of Prevail Therapeutics.

Looking ahead

Although Lilly's COVID-19 antibody therapies made a big difference in Q1, the company projects lower sales going forward due to reduced demand. As a result, Lilly revised its full-year 2021 revenue guidance downward. It now expects revenue of between $26.6 billion and $27.6 billion, compared to the company's previous guidance of $26.5 billion to $28 billion.

This lower revenue projection will also impact Lilly's bottom line. In addition, the company anticipates higher research and development costs. Lilly lowered its 2021 earnings per share (EPS) outlook to between $7.03 and $7.23, down from $7.10 to $7.75. It also lowered its non-GAAP EPS guidance to between $7.80 and $8, compared to the previous projection of $7.75 to $8.40.

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