Eli Lilly (LLY 1.60%) outperformed the broad market S&P 500 index in 2020, but its winning days are not in the rearview mirror. With its strong catalog and pipeline, growing revenues, and a recently boosted dividend, I think the pharma stalwart is still an exceptional buy.
Up and down, but mostly up
Eli Lilly boasts one of the more diverse catalogs in the industry, and last year boasted nine drugs that individually raked in more than $1 billion annually. Its revenue leaders were Trulicity (for type 2 diabetes), Taltz (for plaque psoriasis), and Jardiance (also for type 2 diabetes), which brought in $5.06 billion, $1.788 billion, and $1.153 billion, respectively. Each's sales grew by 23%, 31%, and 22% year over year.
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In addition, the company has done some work to help combat the COVID-19 pandemic. The U.S. Food and Drug Administration (FDA) granted emergency use authorization (EUA) for its monoclonal antibody, bamlanivimab, for the treatment of mild to moderate COVID-19 in adults and children 12 years and older in November 2020. The federal government made an agreement to purchase as much as 1.45 million doses of bamlanivimab, and paid $375 million for 300,000 vials in October. But as of April 16, 2021, the FDA has revoked the EUA that allowed the treatment to be used alone to treat COVID-19. While this is news comes at a potential loss for any future revenue to be derived from bamlanivimab for Lilly, the initial purchase order from the U.S. government only represented less than 2% of its almost $26 billion in 2020 revenue in the first place. Eli Lilly's COVID-19 efforts didn't end up being the boon some investors might have hoped for.
Along with research and development (R&D), Eli Lilly also continues to make acquisitions to further bolster its pipeline. It laid out $880 million for Prevail Therapeutics, gaining access to gene therapies that will expand its neurodegenerative diseases portfolio and drug candidates. With sales of its current big three treatments growing at an average pace of 25% annually, as well as staples in the portfolio like Humalog and Humulin (both insulin drugs), the company has a strong foundation to build on, and will be able to use the coming years to further expand its portfolio.
Diversification and dividends
Eli Lilly has diversified tremendously, both across its product lines and its regions of operation. While it drew the majority of its 2020 revenue -- around $14.22 billion -- from the U.S. market, it booked $4.18 billion, $2.58 billion, and $2.42 billion from Europe, Japan, and China, respectively. It also boosted its dividend by nearly 15% over the last two years. This sends a good signal to investors that the company is generating enough cash and will be able to keep rewarding shareholders.
Eli Lilly's dividend policy in the not-too-distant past was (in part) a signal that the company was going through some tough times with its sales and pipeline stagnating. There were no dividend increases from 2009 to 2014. Now, with growing sales and a developing pipeline, it looks like management could keep increasing those payouts for years to come.
Buy it and forget it
The market has taken notice of Eli Lilly's recent successes, bidding its share price up, though its first-quarter earnings fell short of expectations due to declining demand for its COVID-19 therapeutic. I believe the company's earnings per share will grow from 2020 into 2021. That view aligns with the company's latest guidance for EPS of as much as $8 a share in 2021, which would be a 0.88% increase from 2020. The company has booked revenue growth repeatedly in the past few years -- in 2020, sales rose by 10.39%, more than twice the sector median of 4.91%.
The company is trading at a forward price-to-earnings (P/E) ratio of nearly 23, down from levels around 28 earlier this year. Based on its 2020 EPS of $7.93, a return to that valuation level would bring investors more than 17% of upside. For all of these reasons, Eli Lilly might be a nice addition to any long-term portfolio.
