Please ensure Javascript is enabled for purposes of website accessibility

Eli Lilly Looks Great Today, but I'm Concerned About Tomorrow

By Brian Orelli, PhD - Updated Apr 6, 2017 at 11:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Eli Lilly is firing on all cylinders, but is there a blowout in its future?

Revenue up 9%. Administrative and selling costs up only 3%. Research and development spending up 14%, but it's an investment in the future. Lots of chatter about not making a large acquisition. Raised guidance. There's very little not to like about Eli Lilly's (NYSE: LLY) second-quarter earnings.

But then there's the future. A patent cliff that makes the Grand Canyon look like a creek bed. A pipeline that's so back-ended, it causes Sir Mix-a-Lot to salivate. The next couple of years aren't going to be pretty for the drugmaker.

What's an investor to do? The strong performance is a good sign that management knows what it's doing, but that may not be enough to get the company through the transition cleanly. The growth prospects' post-patent cliff is clearly limited, so the question comes down to whether Eli Lilly is an interesting enough value play.

At this point, the answer is a resounding maybe.

If you ignore the growth of Zyprexa, Cymbalta, Humalog and Gemzar, which will face generic competition soon enough, the rest of its offerings were up 12% year over year.

But Eli Lilly needs big hits from its newest drugs, which isn't really happening. Effient, which gained Food and Drug Administration approval this time last year, had sales of only $23 million in the second quarter. The drug was supposed to take a decent chunk of Bristol-Myers Squibb (NYSE: BMY) and sanofi-aventis' (NYSE: SNY) Plavix's multibillion-dollar market share, but that clearly isn't happening. Diabetes drug Bydureon, which it'll sell with Amylin Pharmaceuticals (Nasdaq: AMLN) and Alkermes (Nasdaq: ALKS), could help fill that void if it's approved by the end of the year.

It's those "coulds" and "ifs" that make Eli Lilly hard to read. The company could be a great investment in 10 years, but for now it remains a bit risky with all of its unknowns.

Motley Fool Rule Breakers is always on the hunt for hot drug stocks and other cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$308.08 (2.63%) $7.89
Sanofi Stock Quote
Sanofi
SNY
$44.37 (2.19%) $0.95
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$75.57 (1.49%) $1.11
Alkermes plc Stock Quote
Alkermes plc
ALKS
$26.15 (2.67%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.