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Is a Beat in the Cards for Eli Lilly (LLY) in Q2 Earnings?

We expect Eli Lilly and Company LLY to beat expectations when it reports second-quarter 2017 results on Jul 25, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.08%.

So far this year, Lilly’s share price has risen 13.8% compared with an increase of 11.9% for the Zacks classified Large-Cap Pharma industry.

Lilly’s earnings performance has been mixed with earnings missing expectations in two of the last four quarters, while beating in the other two, bringing the average negative surprise to 2.28%.

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

Factors at Play

Continuing the trend of the past few quarters, new products like Trulicity, Cyramza, Taltz and Jardiance are likely to support the top line in the second quarter. 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 (launched in Jan 2017) while the American Diabetes Association (ADA) updated its diabetes treatment guidelines. At the first quarter call, management had said that since the launch of the CV indication and ADA’s addition of Jardiance to its treatment guidelines, Jardiance new-to-therapy volume has increased by 75%. This is expected to translate into higher sales.

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 U.S. Also, lower demand in the U.S. due to competitive pressure mainly from immuno-oncology agents is hurting Alimta’s U.S. sales.

Nevertheless, older products like Humalog, Trajenta and Forteo should continue to do well.

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 SNY blockbuster drug, Lantus - was launched in the U.S. in mid-Dec 2016. Lartruvo (olaratumab) was launched in the U.S. and the EU for soft tissue sarcoma in the fourth quarter of 2016. Both the new drugs are expected to generate decent revenues in the to-be-reported quarter.

Another new drug, Olumiant has been launched in select European countries and should add to the top line in the second quarter. The drug is under review in the U.S.  In Apr 2017, Lilly received a complete response letter (CRL) from the FDA for baricitinib. The FDA requires additional clinical data, which will delay the approval of the drug. An update on the same is expected on the conference call.

Animal Health segment sales suffered last quarter due to global competitive pressure. It remains to be seen if trends improve this quarter.

What Our Model Indicates

Our proven model shows that Lilly is likely to beat on earnings because it has the right combination of the two key ingredients. A stock needs to have both a positive">Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: The">Earnings ESP, which represents the difference between the Most Accurate estimate ($1.04 per share) and the Zacks Consensus Estimate ($1.03 per share), is +0.97%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly has a Zacks Rank #2. The combination of Lilly’s favorable Zacks Rank #2 and positive ESP makes us confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5), on the other hand, should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Eli Lilly and Company Price and EPS Surprise


Eli Lilly and Company Price and EPS Surprise | Eli Lilly and Company Quote

Other Stocks to Consider

A couple of stocks in the large cap pharmaceuticals sector that also have a positive Earnings ESP and a favorable Zacks Rank are:

Novo Nordisk A/S NVO, scheduled to release results on Aug 9, has an Earnings ESP of +7.14% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer, Inc. PFE has an Earnings ESP of +1.54% and a Zacks Rank #3. The company is scheduled to release results on Aug 1.

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