Lilly lowers 2019 revenue hopes, citing Lartruvo failure
- A combination of pricing pressures, an unexpected trial failure of a cancer drug and the impact of an $8 billion acquisition led Eli Lilly on Wednesday to pare down 2019 expectations, including lowering its revenue forecast range by $200 million.
- Lilly finished 2018 strong, largely beating Wall Street expectations on fourth quarter revenue and logging 7% revenue growth over the prior year. But investors and analysts were focused on 2019, particularly on the long-term impacts from two January events: the buyout of Loxo Oncology and Lartruvo's Phase 3 study setback.
- Shares in Lilly were down nearly 2% at market's open Wednesday, although the company posted strong market gains over the past 12 months. Compared to a year ago, shares are up about 50%.
In an earnings season highlighted by multiple industry leaders warning of flat or declining revenues, Lilly still projects growth in 2019.
Even with the downward revision, the new guidance range forecasts revenues for the Indianapolis-based drugmaker to grow by between 2% and 4% this year.
Events from last month have tempered 2019 business expectations, though, executives said on a Wednesday morning earnings call.
The impact of Lilly's acquisition of Loxo is expected to lower earnings per share based on higher R&D spending and certain tax and interest expenses. Lilly predicts the deal to close later this quarter.
The $8 billion deal for Loxo was announced last month at the J.P. Morgan Healthcare Conference.
A subsequent Securities and Exchange Commission filing showed the drugmaker worked quickly on the deal, with deal talks beginning and wrapping up in roughly two weeks as Lilly eyed a JPM rollout. Lilly was Loxo's only bidder, the filing disclosed, and the cash offer carried a 68% premium.
More recently, the pharma disclosed Lartruvo (olaratumab) failed to show an overall survival benefit in a Phase 3 study in a rare form of cancer for which the drug had received accelerated approval in 2016. Lilly suspended the promotion of Lartruvo, and U.S. and European regulators have recommended against doctors starting patients on the therapy.
Lartruvo posted slightly more than $300 million in sales last year, and Lilly executives were tight-lipped on providing further details of the drug's future beyond plans to meet with global regulators.
CEO David Ricks was more open to discussing the political pressures facing the industry, in particular praising a recent Trump administration proposal to eliminate safe harbor rebates to insurers in federal healthcare plans.
He said the proposal, if enacted, would remove an artificial barrier to competition and lower out-of-pocket costs for patients.
More broadly, Ricks said it was hard to speculate on how policy debates will play out, noting the fast-moving environment.
"It seems like every week we see some new proposed regulatory rule or the introduction of some idea on the Hill as it relates to drug pricing," Ricks said.
Fresh company data underlined the changing pricing dynamics with which the industry has been grappling. In past weeks, a number of major drugmakers have noted they expect net prices in the U.S. to remain flat or decline, limiting revenue gains.
Breakdowns from Lilly on the impact of price and volume show sales growth to come entirely from increased use of the company's medicines, with pricing weighing on revenue in all major markets.
If sustained, the shifting trend in U.S. pricing could deprive pharma of its favorite lever for driving revenue growth.
While list price hikes are still happening — although at lower rates than in previous years — investors have grown increasingly concerned on how drugmakers will position themselves for future growth, SVB Leerink's Geoffrey Porges wrote in a Feb. 5 note to investors.
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