Lilly Remains Poised for Industry-Leading Growth

Eli Lilly LLY reported solid fourth-quarter results largely in line with our expectations, and we don’t expect any changes to our fair value estimate. We continue to view Lilly as slightly overvalued with the market potentially too optimistic on the firm’s outlook. While we believe Lilly is well positioned to post industry-leading sales growth over the next five years, the stock’s high valuation seems to expect even stronger potential. Despite our view on valuation, the firm’s excellent position with the current portfolio and pipeline continues to support a wide moat rating.

We expect flat 2022 sales growth following the fourth quarter’s 8% growth as Lilly’s COVID-19 treatment sales will likely fall in 2022, but we expect a robust acceleration of growth into 2023 and 2024. Lilly’s COVID-19 treatments have been providing a boost to sales growth over the past several quarters, but as new superior treatments have emerged and concern around severe COVID-19 cases is likely to fall due to increased vaccine utilization, we expect a drop of almost $1.5 billion in Lilly COVID-19 treatments in 2022. However, we expect Lilly’s strong underlying portfolio with diabetes treatments Trulicity and Jardiance, cancer drug Verzenio, and immunology drug Taltz to offset the lost COVID-19 sales as well as Alimta generics in 2022.

Despite the slow growth in 2022, the firm is making excellent progress with the pipeline that should complement continued strong underlying growth by 2023. We expect the likely blockbuster approvals of diabetes drug tirzepatide, atopic dermatitis drug lebrikizumab, immunology drug mirikizumab, cancer drug pirtobrutinib, and Alzheimer’s drug donanemab in 2022 and 2023. However, Medicare coverage restrictions on Biogen's Alzheimer’s drug Aduhelm will likely slow the sales trajectory of Lilly’s donanemab and reinforce the importance of the follow-up phase 3 donanemab study due in mid-2023.

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