Dive Brief:
- Eli Lilly & Co. gave an update for its 2018 through 2020 guidance on Wednesday morning. Analysts expect only a 5% compound annual growth (CAGR) for the big pharma.
- The company now expects to bring $23 billion to $23.5 billion in revenues, representing a low-single digit growth range, and earnings per share in the range of $4.24 to $4.34 on a non-GAAP basis. It reaffirmed 2017 non-GAAP earnings guidance, but revised down its reported earnings per share to a range of $1.56 to $1.66 from its prior range of $1.73 to $1.83.
- Lilly CEO Dave Ricks told investors on a call that the assumptions were based on no change in the status of healthcare laws or tax reform in 2018.
Dive Insight:
Analysts agree that the next few years are going to be tough ones for Eli Lilly. Several key drugs, including Cialis (tadalafil) and Effient (prasugrel), are facing generic competition, expected to cut into revenues for the next two to three years.
With that in mind though, Lilly is hoping the launch and growth of new products will keep the company growing – at least slightly.
"Lilly is in the early stages of a growth period driven by revenue from recently launched products, including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant and Lartruvo," said Ricks. "Looking to the future, the potential of our pipeline remains strong, including new medicines in development for the treatment of migraine, rheumatoid arthritis, pain, cancer and diabetes, as well as additional indications for many of our recently launched products."
The company’s rheumatoid arthritis drug baricitinib, which has faced several regulatory setbacks, is once again under review by the Food and Drug Administration. Lilly expects a decision from the agency in 2018. The company also expects approval of its CGRP galcanezumab in migraine, another indication for Verzenio (abemaciclib) in breast cancer, and a new indication for Taltz (ixekizumab) in psoriatic arthritis.
In addition to that, Ricks and Lilly’s Head of Diabetes Enrique Conterno emphasized on the Wednesday morning call that they expect the diabetes market to grow, including the GLP-1 market. While Conterno acknowledged formulary restrictions facing some products and the increased competition, he said the portfolio will continue to grow.
Lilly’s SGLT-2 inhibitor Jardiance (empagliflozin) was knocked off the CVS Health formulary list for 2018 in favor of Johnson & Johnson’s SGLT-2 Invokana (canagliflozin).
The Indianapolis-based pharma recently announced that it would increase its dividend by 8%, raising its annual rate to $2.25 per share. The company noted on the call with analysts that it pursued the increase to make up for the many years that Lilly kept its dividend flat during the patent cliff, what Lilly called its YZ years.
Lilly on tax reform
In light of policy debates in Washington, Lilly faced questions about repatriation and the potential for tax reform. Incoming CFO Josh Smiley noted that Lilly has about $10 billion in cash overseas that it would like to repatriate should a tax bill make this a more favorable prospect.
"Tax reform legislation will have to pass, and we are watching that very carefully. . . We would have to pay tax on the cash and the unremitted earnings, so the first thing we would do is start paying tax; I think most of the legislation had that being paid out over a period of time," said Smiley.
"But we would bring back the cash and it would give us more flexibility from a capital structure perspective. But we would stick with our current priorities in terms of capital allocation. We would make sure we would be making investments in the business itself that will give us long-term sustainability. We would look to put our capital to work for external innovation when we can find assets that upgrade and enhance our portfolio. We’ll look to return capital to shareholders. We won’t look to sit on excess cash," he added.
Smiley noted that Lilly would like to see a more competitive corporate rate, a territorial tax system, and incentives in U.S. investment and innovation.
"The details around the corporate alternative minimum have a big swing ultimately on how things are calculated, the pluses and minuses for Lilly and the pharma industry. I think you'll see less impact on our actual reported tax rate of 21.5%, and its more about the benefits for future investments and putting U.S. companies on level playing field," concluded Smiley.