Eli Lilly ( LLY ) CEO David Ricks expressed optimism about the drugmaker’s innovation pipeline on Tuesday, a sentiment we share despite Club Holdings’ messy quarterly report released earlier in the day. “The underlying fundamentals of the business are really strong,” Ricks said in a CNBC interview with Jim Cramer. “seventy percent of our revenue is relatively new products and they grew 24% in Q3 in constant currency, so really strong operational performance in the quarter.” Overall, the Indianapolis-based pharmaceutical giant’s third-quarter sales and earnings exceeded analysts’ expectations. However, investors were disappointed by the company’s lowered full-year revenue and profit outlook, sending shares down 2.6% to close at $352.58. While the stock closed well off its session low of $340.75, we understood its decline on Tuesday. This is especially true when you consider the stock closed Monday at an all-time high, after being a big outperformer all year long. Lilly shares are up more than 27.5% year-to-date, compared with the S&P 500’s 19% decline in 2022. Eli Lilly — which generates about 40% of its sales overseas — largely attributed the guidance cut to strong U.S. dollar. Ricks said Eli Lilly expects about a $300 million headwind to revenue based on current exchange rates, with “most of that flowing to the bottom line in Q4.” With three quarters already reported, Eli Lilly now expects full-year sales to range between $28.5 billion to $29 billion and adjusted earnings per share between $7.70 to $7.85. Prior guidance was for revenue between $28.8 billion and $29.3 billion and EPS of $7.90 and $8.05. New diabetes drug is off to a good start One of our biggest reasons to like Eli Lilly is the company’s new type 2 diabetes drug, which has also shown promise as an obesity treatment. While regulatory approval for weight loss specifically could come in late 2023 or early 2024, the drug is already being prescribed for diabetes. And so far the launch is going better than expected. Not only did third-quarter revenue of $187 million top Street expectations, but Ricks told CNBC on Tuesday that the drug — under the brand name Mounjaro — coexists well in the market alongside Trulicity, another of the company’s Type 2- diabetes medicine. Mounjaro received FDA approval in May, while Trulicity was approved in 2014. The drugs fall within the same class of drugs, but Mounjaro has some additional innovations around incretin hormones. “We probably expected a little more cannibalization than we’ve seen,” Ricks said, referring to the idea that Mounjaro’s market debut would cut into Trulicity sales. “Trulicity held up pretty well. Most of the growth in Mounjaro is new patients coming into this class from medications that didn’t work well for those with diabetes, so that’s good news — class growth for us as we look forward with the outlook. ” Updates on Lilly’s Alzheimer’s Trials In late September, we were encouraged by positive study results for an experimental, late-stage Alzheimer’s treatment jointly developed by Japanese pharmaceutical company Eisai and US-based Lilly rival Biogen (BIIB ). The reason? The drug is similar to one that Eli Lilly is working on to treat the most common form of dementia. Both drugs seek to reduce accumulation on the brain of amyloid beta protein. The results from the latest Eisai-Biogen study are actually “good news for the field,” according to Ricks, “because the field needs confidence that addressing amyloid plaques can reduce the burden of Alzheimer’s.” “Our study is fully enrolled,” Ricks added, noting that the FDA has agreed to review Lilly’s Alzheimer’s drug, called donanemab, through its accelerated approval pathway. “The data will start to come in quickly here, and we hope by the middle of next year we’ll have definitive proof that this is helping patients.” (Jim Cramer’s Charitable Trust is long LLY. See here for a complete list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO LIABILITY OR OBLIGATION IS OR WILL BE CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR DILUTION ARE GUARANTEED.
David Ricks, CEO, Eli Lilly
Scott Mill | CNBC