Is the bear market over? Equities have been rallying since 2023 started, with all three major U.S. market indexes in the green year to date. It's hard to know whether that will continue. Many corporations are rebounding, while others have been southbound to start the year.
Consider two examples: Eli Lilly (LLY 1.19%) and Intuitive Surgical (ISRG 0.59%). These healthcare leaders are down by 12% and 13%, respectively, in 2023. Both face some headwinds, but for long-term investors, this recent dip, if anything, is a good buying opportunity. Read on to find out why.
1. Eli Lilly
Eli Lilly crushed the market in 2022, but the company's latest quarterly update spooked some investors. The drugmaker's revenue dropped by 9% year over year to $7.3 billion in the fourth quarter of 2022, while its adjusted earnings per share declined by 4% year over year to $2.09.
In another blow, Lilly recently failed to earn accelerated approval from the Food and Drug Administration (FDA) for donanemab, a promising potential medicine for Alzheimer's disease.
These issues, real as they are, don't constitute serious obstacles to the company's long-term prospects. The revenue decline is entirely due to its coronavirus products, which racked up less in sales in the fourth quarter of 2022 than in the comparable period of 2021. Excluding its COVID-19 antibodies, sales increased by 5% year over year, a decent performance for a pharmaceutical giant.
And while it's not ideal that the FDA declined donanemab's application, the accelerated-approval pathway -- which Lilly sought without solid results in a large, long-term phase 3 clinical trial -- was always a long shot. The FDA only mentioned the lack of data from patients with more than 12 months of exposure to the medicine as the reason it turned down the application.
The company is currently running a late-stage study for donanemab, the results of which it should report midyear. It will use this to seek regular approval from the FDA.
Even if donanemab fails to earn the green light from regulatory agencies, there are plenty of other medicines that will drive top-line growth for the company. It launched its diabetes therapy, Mounjaro, last year.
According to some estimates, it could achieve massive peak annual sales of $25 billion. Lilly announced three other potential launches of products in 2023. The company's exciting pipeline is likely the key reason it outperformed the broader market last year.
And Lilly is still in a solid position to grow its revenue and earnings at a good clip in the long run, especially as coronavirus-related dynamics stop affecting its results and the company improves its lineup with brand-new products.
So despite the poor start to 2023, Eli Lilly remains an attractive stock.
2. Intuitive Surgical
During the early days of the pandemic, Intuitive Surgical's business experienced some disruption as the volume of procedures performed with its robotic-assisted surgery (RAS) device, the da Vinci system, fell. That's understandable; hospitals were often filled with coronavirus patients, leaving little room for the kind of elective procedures Intuitive Surgical facilitates.
While procedure volume eventually rebounded somewhat, Intuitive then had to deal with economic problems, most notably supply chain issues, that hindered its ability to place more of its da Vinci systems. That said, all of these issues are short-term problems.
In the fourth quarter, Intuitive Surgical reported solid procedure growth, except in the Chinese market, where there was a resurgence of the coronavirus.
And in the three years between the fourth quarter of 2019 and that of 2022, the company's procedure volume increased at a compound annual rate of 14%.
We can expect this metric to keep improving for two reasons. First, RAS made up just 3% of total procedures globally in 2021. That's even though they are minimally invasive and allow for faster recovery. Second, with an aging population, there will be an even greater need for this technology.
So we can expect the RAS market to continue growing. Higher demand for procedures means higher sales for the instruments and accessories that go along with the da Vinci system. Meanwhile, the healthcare company is seeking ways to deal with supply chain issues in the long term.
CEO Gary Guthart said, "We have been vertically integrating key technologies to develop a more robust supply chain and bring important products to market at attractive price points."
This will be a recipe for lower costs, higher profits, and higher margins. Intuitive Surgical might still be vulnerable in the next few months, but its long-term prospects remain intact for investors willing to be patient.
