Boosted by tax reform, Lilly looking for ways to spend $9B
- Eli Lilly & Co. expects recent changes to U.S. tax law will free it to deploy about $9 billion over the near term, raising the prospect of new business deals or capital investments by the Indianapolis drugmaker.
- Comments from company executives on an earnings call Wednesday suggested their approach to spending that cash would be more methodical than splashy, with a focus on earlier-stage clinical assets and on funding existing R&D efforts.
- Revenue for the fourth quarter rose by 7% year over year to total $6.16 billion, beating market expectations. Fast growth from newer medicines, in particular diabetes treatment Trulicity and the autoimmune disease drug Taltz, more than offset the impact of patent expirations and drove pharmaceutical sales up by 9%.
In what is fast becoming a common occurrence across the industry, Eli Lilly raised its profit guidance for 2018 due to the beneficial impact of tax reform. The pharma now expects earnings per share this year to fall between $4.39 and $4.49, up from a previous range of $4.24 to $4.34.
Over the past week and a half, Pfizer Inc., Johnson & Johnson, AbbVie Inc. and Biogen Inc. have all reported lower expected effective tax rates moving forward, strengthening optimism 2018 will see stepped-up M&A activity.
Lilly, which still relies heavily on its portfolio of diabetes drugs, has not sprung for major multi-billion dollar deals in the past, preferring instead to complement its existing expertise and focus on smaller transactions. Last year's acquisition of CoLucid Pharmaceuticals Inc. for just under $1 billion, for example, added a treatment for acute migraine to its neuroscience pipeline.
Yet $9 billion in newly freed-up cash gives Lilly some options. "We do have ambition to step up our game in [business development]," said CEO Dave Ricks on the Jan. 31 earnings call.
Lilly CFO Josh Smiley said the company aims to invest in its existing pipeline, exploring business development opportunities and returning cash to shareholders. Any deal would likely focus on bolstering the company's early-stage pipeline, Smiley said, pointing to the higher cost of later-stage assets.
Currently, expectations are high for several drugs emerging from Lilly's pipeline, including the migraine treatments galcanezumab and lasmiditan, as well osteoarthritis pain drug tanezumab. Yet Lilly has also recently suffered a stinging clinical setback in Alzheimer's and a costly delay for its rheumatoid arthritis hopeful baricitinib.
Baricitinib is now back on track for a second round under the Food and Drug Administration's review and could join a crop of new drugs that Lilly is counting on to help mitigate a tightening market in diabetes.
Sales of Trulicity (dulaglutide) nearly doubled in the fourth quarter compared to the same period last year, earning $649 million for Lilly and beating consensus expectations. Taltz grew strongly as well, up 182% year over year.
All told, revenues from new drugs accounted for 23% of Lilly's revenue in the fourth quarter — an encouraging sign. But blockbuster futures are not a guarantee.
Taltz will face stiff competition from Novartis AG's Cosentyx (secukinumab) and Trulicity competes with Victoza (liraglutide), a similar drug from rival Novo Nordisk A/S that recently secured an important new cardiovascular indication on its label.
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