Excellent, magnificent, fantastic! All of these superlatives (and more) describe Eli Lilly's (LLY -0.03%) performance in recent years as it has delivered market-crushing returns and strong regulatory progress. Though the stock might peak eventually, we aren't there yet, as the pharmaceutical giant proved with its latest quarterly update. There remains substantial upside for Eli Lilly, and given its prospects, it's hard to pass up on the drugmaker.
Strong financial results
Eli Lilly is still riding the wave of brand-new approvals. Diabetes treatment Mounjaro earned the green light about two years ago; Zepbound, an obesity medicine, was launched late last year as were cancer therapy Jaypirca and Omvoh, a treatment for ulcerative colitis. The drugmaker also has older products that are still driving top-line growth. Those include immunosuppressant Taltz and cancer drug Verzenio.
With a lineup that deep -- and the adverse effects of coronavirus-related sales gone -- it's no surprise that Eli Lilly is delivering strong financial results. In the first quarter, the company's revenue increased by 26% year over year to $8.8 billion. Eli Lilly's adjusted earnings per share of $2.58 was 59% higher than the year-ago period.
Of note, Eli Lilly did encounter some issues during the quarter. The company had trouble meeting demand for Zepbound, which experienced shortages. Eli Lilly is working on increasing its manufacturing capacity. It expects the most significant production increases in the second half of the year, something that should eventually positively affect revenue growth.
Several catalysts on the way
Eli Lilly should see more clinical progress in the next year. It recently reported positive results from two phase 3 clinical trials for tirzepatide (the active ingredient in Mounjaro and Zepbound) in treating sleep apnea in people with obesity. That's one more indication that could meaningfully move the needle for a medicine that looks unstoppable.
The drugmaker also resubmitted an application for lebrikizumab as a treatment for atopic dermatitis in the U.S. after the Food and Drug Administration (FDA) flagged manufacturing issues with the medicine when first evaluating it for approval last year.
Then there is donanemab, Eli Lilly's potential therapy for Alzheimer's disease (AD) that the FDA is currently considering. An approval here could jolt the stock price given that AD therapies have been difficult to develop. However, donanemab's situation looks tricky. The FDA decided to delay the review process while requesting help from an independent panel. It's not unusual for the agency to request the advice of outside experts, especially in the field of AD, which has been incredibly hard to navigate for drugmakers and regulators.
However, the timing of this decision by the FDA was unusual. It happened right before the FDA's stated PDUFA goal date (the latest that it was supposed to complete the review), and the agency had to delay ruling on the matter to wait for the committee's decision. At the very least, it indicates that the FDA likely has concerns regarding Eli Lilly's application -- specifically, the design of the clinical trial it used to support donanemab's efficacy. Could the health regulatory body deliver bad news regarding donanemab to Eli Lilly?
The medicine's safety and efficacy both seemed reasonable in the late-stage study the company used to support its request for approval. At worst, the FDA might request an additional study, which would certainly complicate matters for Eli Lilly. But even without donanemab, the drugmaker will be fine -- in fact, better than fine. Its lineup is incredibly deep, and its pipeline is equally exciting.
Analysts expect the company's earnings per share to grow by an average of almost 54% in the next five years (those are incredibly strong projections for a pharma giant), while the company's dividends have doubled in the past five years. These are all reasons Eli Lilly is a no-brainer pharmaceutical stock to buy.
