Eli Lilly (LLY) To Report Q1 Earnings: What's In The Cards?

Eli Lilly and Company (NYSE:LLY) will report first-quarter 2017 results on Apr 25, before the market opens. Last quarter, the company delivered a negative earnings surprise of 4.04%.

So far this year, Lilly’s share price has risen 10.7% compared with an increase of 5.6% for the Zacks-classified Large-Cap Pharma industry.

Lilly’s performance has been rather poor with earnings missing expectations in three of the last four quarters, while beating in only one, bringing the average negative surprise to 3.39%.

Let’s see how things are shaping up for this quarter.

Factors at Play

New products like Trulicity, Cyramza, Taltz and Jardiance supported the top line in the past two quarters. We expect the trend to continue in the first quarter of 2017 as well. While Trulicity sales are being driven by growth in the GLP-1 market and market share gains, Jardiance sales should continue to be driven by increased market share within the growing SGLT2 class. In Dec 2016, the FDA approved Jardiance for the CV indication while the American Diabetes Association updated its diabetes treatment guidelines. Management believes that both these factors will drive growth of Jardiance and the SGLT-2 class.

However, sales of Alimta, Cymbalta and Zyprexa are expected to continue to decline due to the loss of exclusivity. Cymbalta has lost exclusivity in Europe and Canada, Zyprexa in Japan and Alimta in several countries outside the U.S. Meanwhile, lower demand in the U.S. due to competitive pressure mainly from immuno-oncology agents is hurting sales of key drug Alimta in the U.S.

Tthe Animal Health segment should continue to do well and so do older products like Humalog, Trajenta and Forteo.

Newly launched drugs like Basaglar and Lartruvo should add to the top line. Basaglar - Lilly and partner Boehringer Ingelheim’s follow-on insulin to Sanofi’s (NYSE:SNY) blockbuster drug, Lantus - was launched in the U.S. in mid-Dec 2016. Lartruvo was launched in the U.S. in late Oct 2016. In Europe, Lartruvo was launched in mid Nov 2016.

Last week, Lilly and partner Incyte announced the receipt of a CRL from the FDA for baricitinib, denying approval to the NDA in its present form. The FDA requires additional clinical data, which could delay the approval of the drug. The announcement took the investor community by surprise and further clarity is expected on the conference call.

What Our Model Indicates

Our proven model does not conclusively show that Lilly is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate as well as the Zacks Consensus Estimate are pegged at 96 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks in the pharmaceuticals sector that have both a positive ESP and a favorable Zacks Rank are:

Amgen, Inc. (NASDAQ:AMGN) is scheduled to release results on Apr 26. The company has an Earnings ESP of +1.99% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celldex Therapeutics, Inc. (NASDAQ:CLDX) has an Earnings ESP of +7.14% and a Zacks Rank #3. The company is expected to release results early next month.

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