LLY Stock: Is Eli Lilly a good bet in COVID-challenged healthcare market?

For pharmaceutical companies, 2020 was a busy year when the healthcare sector went into overdrive to deal with the challenges posed by the coronavirus outbreak. While most drug makers invested their resources in vaccine development, others like Eli Lilly and Company (NYSE: LLY) focused on antibody therapy.

Shares of the Indiana-based company closed the last trading session at a record high, after gaining about 10% during the session. The rally was triggered by the upbeat sentiment brought by the FDA’s decision to approve Biogen’s (NASDAQ: BIIB) Alzheimer’s drug. After breaching the $200-mark earlier this month, Lilly’s stock traded well above its 52-week average on Tuesday morning. At the current price, the stock looks overvalued but its future prospects remain encouraging, thanks to the growing product portfolio.

A Long-term Bet?

Market watchers, in general, are bullish in their recommendations. Nevertheless, short-term investors need to approach LLY with a little caution, considering the possibility of a correction in the near future. With the COVID vaccination drive picking pace, there is a slowdown in the demand for antibody therapies, which is likely to impact Lilly’s sales.  

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Read management/analysts’ comments on Eli Lilly’s Q1 earnings

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However, the unfavorable demand conditions might not affect margins, since the company’s COVID drug program is voluntary in nature. Recent studies showed that Lilly’s bamlanivimab is not effective in fighting certain new variants of coronavirus, though it performed well when used along with etesevimab, another antibody-drug developed by it. Recently, Indian regulators approved this combination for emergency use, as part of expediting the country’s COVID care activities.

Strong Portfolio

The company will continue riding its impressive portfolio that includes nine blockbuster drugs, with some key launches lined up for this year and beyond. That would also help in overcoming the impact of potential patent expiration. Earlier this year, a phase-II clinical trial on Lilly’s Alzheimer’s candidate donanemab yielded positive results, triggering a stock rally. The FDA nod for Biogen’s therapy is viewed as a prelude to more regulatory flexibility towards Alzheimer’s candidates in general.

From Eli Lilly’s Q1 2021 earnings conference call:

“We made significant progress developing new medicines with many more data readouts expected this year. Advances for tirzepatide, donanemab, pirtobrutinib, Verzenio, mirikizumab, Retevmo, and Olumiant serve as a reminder of the breadth and depth of opportunities we have to sustain robust long-term growth. We’ve returned nearly $800 million to shareholders via an increased dividend, reflecting confidence in the ongoing strength of our business.”

Mixed Q1 Outcome

The company has posted mixed quarterly results during the pandemic but maintained stable earnings and top-line performance so far. In the first quarter of 2021, revenues increased 16% annually to $6.8 billion. Consequently, earnings grew in double digits to $1.87 per share.  However, the results missed Wall Street’s prediction. The management slashed its full-year sales outlook citing the dip in demand for antibody therapies. The cautious guidance also reflects the weaker-than-expected performance of leading products like Taltz — for the treatment of psoriasis — and breast cancer drug Verzenio.

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Pfizer reports Q1 EPS of 93 cents: Infographic

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Lilly’s stock closed the last trading session around $222, which is up 32% year-to-date. During that period, it outperformed competitors and the broad market quite often.