Key takeaways
View moreEli Lilly appears moderately undervalued based on its strong financial performance, robust growth prospects, and current valuation multiples below industry averages. The company's leadership in key therapeutic areas and promising pipeline, particularly Orforglipron, suggest potential for significant future growth. However, risks such as high debt levels, regulatory challenges, and PBM negotiations justify some valuation discount, preventing a larger undervaluation assessment.
- Eli Lilly demonstrates strong revenue growth, with Q1 2025 revenue reaching $12.73 billion, driven by key products like Mounjaro and Zepbound, as highlighted in the earnings call.
- The company's gross profit margin has improved to 82.53% in Q1 2025, reflecting efficient production and pricing strategies.
- Increasing debt levels, with a total debt to equity ratio of 244.32% in Q1 2025, pose potential solvency risks, requiring careful monitoring.
- Strategic investments in U.S. manufacturing, exceeding $50 billion since 2020, aim to enhance supply chain resilience and support future growth, as emphasized in the earnings call.
- PBM negotiations and formulary access are critical risks, particularly in the obesity market, potentially impacting revenue and market share, as noted in the earnings call and SEC filings.
- Valuation metrics, such as EV/EBITDA (36.16) and EV/Sales (15.90), suggest that Eli Lilly may be undervalued compared to industry averages.
- Recent underperformance compared to Johnson & Johnson (JNJ) and higher volatility indicate a riskier investment profile, despite strong long-term performance.
- The development of Orforglipron is a key growth catalyst, with potential regulatory submissions for obesity expected by the end of 2025, as discussed in the earnings call.
- Regulatory risks, including pricing pressures and ongoing legal matters, pose significant threats to the company's financial performance, as detailed in the SEC filings.
Evaluation summary
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Company Overview:
- Eli Lilly & Co. (LLY) is a global pharmaceutical company engaged in the discovery, development, manufacture, and sale of pharmaceutical products. Its key products include treatments for diabetes, oncology, immunology, and neuroscience.
- The company's product portfolio includes Mounjaro, Zepbound, Verzenio, Trulicity, Jardiance, and Taltz. While specific revenue contributions for each product are not detailed in the provided data, the earnings call highlights Mounjaro and Zepbound as significant revenue drivers.
- The comparative analysis will be conducted against Pfizer Inc. (PFE) and Johnson & Johnson (JNJ) as industry peers, and the Health Care Select Sector SPDR Fund (XLV) as a benchmark.
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Financial Performance:
- Eli Lilly has demonstrated strong financial performance in recent quarters. Revenue for the quarter ending March 31, 2025, was $12.73 billion, compared to $11.30 billion for the quarter ending June 30, 2024.
- Net income for the quarter ending March 31, 2025, was $2.76 billion, compared to $2.97 billion for the quarter ending June 30, 2024. The quarter ending December 31, 2024, saw a net income of $4.41 billion.
- Gross profit margin has shown improvement, increasing from 80.80% in the quarter ending June 30, 2024, to 82.53% in the quarter ending March 31, 2025.
- EBITDA margin has also increased, from 41.75% in the quarter ending June 30, 2024, to 45.29% in the quarter ending March 31, 2025.
- Return on Assets (ROA) for the quarter ending March 31, 2025, was 14.49%, Return on Equity (ROE) was 77.73%, and Return on Invested Capital (ROIC) was 25.35%. These figures are above the industry averages of -64.56%, -483.86%, and -130.27%, respectively, indicating efficient resource utilization.
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Operational Efficiency:
- Total current assets increased from $30.20 billion as of June 30, 2024, to $41.26 billion as of March 31, 2025. Total current liabilities also increased from $27.12 billion to $30.07 billion over the same period.
- Working capital increased from $3.08 billion as of June 30, 2024, to $11.19 billion as of March 31, 2025, indicating improved short-term financial health.
- Net operating cash flow was $1.67 billion for the quarter ending March 31, 2025, compared to $1.47 billion for the quarter ending June 30, 2024.
- Free cash flow to equity was $0.16 billion for the quarter ending March 31, 2025, compared to $0.24 billion for the quarter ending June 30, 2024.
- Total capital expenditure was $3.27 billion for the quarter ending March 31, 2025, compared to $1.40 billion for the quarter ending June 30, 2024. Depreciation, depletion, and amortization were $0.46 billion for the quarter ending March 31, 2025.
- The company distributed $1.35 billion in cash dividends for the quarter ending March 31, 2025, and executed a $1.2 billion share repurchase, demonstrating a commitment to returning value to shareholders.
- The current ratio increased from 1.11 as of June 30, 2024, to 1.37 as of March 31, 2025, indicating improved liquidity. However, this is still below the industry average of 6.78.
- The total debt to total equity ratio increased from 213.04% as of June 30, 2024, to 244.32% as of March 31, 2025, indicating increasing financial leverage. This is significantly higher than the industry average of 115.61%.
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Growth Opportunities:
- Eli Lilly is focused on market expansion, particularly with its key products like Mounjaro and Zepbound, as highlighted in the earnings call.
- The company has a robust R&D pipeline, including the development of Orforglipron, which is expected to be a significant growth driver. The company plans to submit Orforglipron for obesity regulatory approval by the end of 2025.
- Lilly is investing heavily in U.S. manufacturing, with over $50 billion in new investments since 2020, including four new facilities.
- The company's strategic focus areas include diabetes, obesity, oncology, immunology, and neuroscience, as indicated in the company description.
- The earnings call mentioned key pipeline achievements, including the EU approval of Jaypirca for CLL and approvals of Omvoh in the U.S., EU, and Japan for Crohn's disease.
- The company's capital allocation strategies include investments in manufacturing capacity, product development, dividends, and share repurchases, aligning with its growth objectives.
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Recent Developments and Market Sentiment:
- Recent news and events, as highlighted in the earnings call, indicate that Orforglipron is a key growth driver due to its potential for oral administration in both diabetes and obesity markets.
- PBM negotiations are a critical risk, with concerns about formulary access, particularly in the obesity market. The CVS formulary announcement favoring Wegovy has raised concerns about market share dynamics.
- Lilly's substantial investments in U.S. manufacturing aim to enhance supply chain resilience and potentially mitigate the impact of tariffs and trade policies.
- The company's commitment to pricing transparency and reducing the gap between list and net prices reflects a long-term strategy to improve affordability and access.
- Overall market sentiment appears mixed, with analysts focusing on PBM dynamics, Orforglipron positioning, and the potential impact of tariffs.
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Risks and Threats:
- Key risks identified in the SEC filings include pricing pressures, competition, dependence on relatively few products, expiration of intellectual property protection, manufacturing difficulties, and litigation.
- The industry risk analysis highlights the impact of governmental and private payer actions on pricing and reimbursement.
- Competitive threats include competition from generics/biosimilars and other pharmaceutical companies.
- Regulatory risks include compliance issues, investigations, and ongoing legal matters related to pricing, access, and product liability.
- The SEC filings mention various lawsuits and investigations related to the 340B program, insulin pricing, Actos, and Mounjaro/Trulicity product liability.
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Valuation Analysis:
- Enterprise Value to EBITDA for the quarter ending March 31, 2025, is 36.16, compared to an industry average of 67.41. Enterprise Value to Sales is 15.90, compared to an industry average of 8792.46.
- These valuation metrics suggest that Eli Lilly may be undervalued relative to its earnings and sales compared to the industry average.
- Potential catalysts include positive clinical trial results, new product launches, and favorable regulatory decisions.
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Price Performance:
- Historical price trend analysis shows mixed performance. The stock price has fluctuated between $714.10 and $897.11 from March 25, 2025, to May 22, 2025.
- Compared to peers, Eli Lilly has outperformed Pfizer but underperformed Johnson & Johnson over the past year.
- Recent price movements have been influenced by earnings reports, clinical trial results, and market sentiment.
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Future Outlook:
- Management guidance, as mentioned in the earnings call, reaffirms the 2025 revenue and performance margin guidance.
- Analyst estimates, though not explicitly provided, are likely to be influenced by the company's strong growth prospects and pipeline developments.
- Recent news and developments, such as the potential launch of Orforglipron and investments in manufacturing capacity, are expected to positively influence the company's future performance.
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Summary:
- Eli Lilly & Co. exhibits strong revenue growth and improved profitability, driven by key products and effective expense management. However, increasing debt levels and higher financial leverage pose potential solvency risks.
- The company demonstrates efficient resource utilization, but increasing accounts receivable and inventories suggest potential inefficiencies in asset utilization.
- Eli Lilly faces significant pricing pressures, supply chain challenges, and legal/regulatory risks that could impact its financial performance.
- Strategic investments in manufacturing capacity and product development are expected to drive future growth and profitability.
- SWOT Analysis:
- Strengths: Strong revenue growth, improving profitability, robust R&D pipeline, strategic investments in manufacturing.
- Weaknesses: Increasing debt levels, potential inefficiencies in asset utilization, reliance on a few key products.
- Opportunities: Market expansion, new product launches, favorable regulatory decisions.
- Threats: Pricing pressures, competition, regulatory risks, supply chain challenges.
- Overall financial health assessment indicates a financially stable company with strong growth prospects but also increasing financial leverage.
- Critical factors for future performance include the successful development and launch of new products, effective management of pricing pressures, and mitigation of regulatory risks.
- Areas requiring further monitoring include debt levels, asset utilization, and the impact of PBM negotiations on market access.
- The investment profile assessment suggests that Eli Lilly is a high-growth, high-risk company with significant potential for long-term returns. However, investors should be aware of the company's increasing debt levels, regulatory risks, and competitive pressures.
Price history
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Fundamentals
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Insights
- Eli Lilly & Co. exhibits strong revenue growth and improved profitability, driven by new product launches and effective expense management.
- The company's increasing reliance on debt financing and higher financial leverage pose potential solvency risks.
- While the company demonstrates efficient resource utilization, increasing accounts receivable and inventories suggest potential inefficiencies in asset utilization.
- Eli Lilly faces significant pricing pressures, supply chain challenges, and legal/regulatory risks that could impact its financial performance.
- The company's strategic investments in manufacturing capacity and product development are expected to drive future growth and profitability.
Analysis
- Revenue
- Revenue has shown strong growth, driven by increased volume, new product launches, and market expansion.
- The growth rate of sales/revenue is accelerating, indicating increasing demand for the company's products.
- Gross profit margin is increasing, reflecting efficient production and pricing strategies.
- Profitability
- Overall profitability has improved, driven by higher revenue, improved margins, and effective tax management.
- The growth rates of EBIT and EBITDA are accelerating, indicating improved operating profitability.
- Net profit margin is increasing, reflecting efficient operations and cost management.
- Return on assets, equity, and capital are all above LLY's averages and the industry averages, indicating efficient resource utilization.
- Liquidity
- The current ratio indicates adequate liquidity, but it is below the industry average, suggesting room for improvement in managing short-term obligations.
- The quick ratio also indicates adequate short-term liquidity.
- The current ratio is moderately increasing, suggesting improving liquidity management.
- Solvency
- The total debt to total equity ratio is significantly higher than the industry average, indicating higher financial leverage and potential solvency risks.
- The debt to EBITDA ratio is below LLY's average and the industry average, indicating manageable debt levels relative to earnings.
- The total debt to total equity ratio is strongly increasing, suggesting increasing reliance on debt financing.
- Operational Efficiency
- Increasing trends in accounts receivable and inventories suggest potential inefficiencies in asset utilization, requiring closer monitoring.
- Enterprise value to EBITDA and sales are below LLY's averages and the industry averages, suggesting that the company may be undervalued relative to its earnings and sales.
- EBITDA margin is strongly increasing, suggesting improving efficiency.
- Cash Flow Analysis - Net income growth has generally been in line with operating cash flow growth, indicating a good quality of earnings. - The company's capital expenditure efficiency should be closely monitored to ensure that investments are generating adequate returns. - The company's dividend growth appears sustainable, given its strong earnings and cash flow generation.
- Risk Factors
- The company faces significant pricing and reimbursement pressures, particularly from regulatory changes like the Inflation Reduction Act in the U.S.
- Manufacturing and supply chain challenges, as well as legal/regulatory issues around product quality and safety, have led to supply disruptions and product recalls.
- The company is highly dependent on a relatively small number of key products, making it vulnerable to competitive threats, patent expirations, and pricing pressures on those franchises.
- The company faces a significant number of legal proceedings and investigations related to pricing, access, and product liability issues.
- Future Outlook
- The company's financial performance is expected to continue to improve, driven by strong revenue growth and improved profitability.
- The company's balance sheet is expected to continue to grow, driven by investments in manufacturing capacity and product development.
- The increasing reliance on debt financing could limit future financial flexibility and increase financial risk.
- Key metrics to monitor in upcoming quarters include revenue growth, gross margin, operating margin, net income, current ratio, total debt to total equity ratio, net operating cash flow, capital expenditure, and free cash flow margin.
- Profitability
Financial statements
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Public filings
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- Lilly is a leading global pharmaceutical company focused on discovering, developing, and commercializing innovative medicines across a range of therapeutic areas. Its key products include diabetes and obesity treatments like Mounjaro and Zepbound, as well as cancer and immunology drugs like Verzenio and Taltz.
- The company faces significant pricing and reimbursement pressures, particularly from regulatory changes like the Inflation Reduction Act in the U.S. that mandate government price setting for certain drugs. This could erode revenues and margins for Lilly's key products.
- Lilly is actively investing in its pipeline through R&D and business development, including the acquisitions of POINT Biopharma and Scorpion Therapeutics. However, the high costs and uncertainties of pharmaceutical R&D pose ongoing risks.
- Manufacturing and supply chain challenges, as well as legal/regulatory issues around product quality and safety, have led to supply disruptions and product recalls, threatening Lilly's ability to reliably meet patient demand.
- Lilly is highly dependent on a relatively small number of key products, making it vulnerable to competitive threats, patent expirations, and pricing pressures on those franchises. Diversifying the pipeline will be critical.
- The company faces a significant number of legal proceedings and investigations related to pricing, access, and product liability issues. Adverse outcomes could result in substantial financial and reputational damage.
- Overall, Lilly appears to be navigating a challenging operating environment, but its strong R&D engine, diversified portfolio, and financial resources provide a solid foundation for weathering industry headwinds. Careful management of pricing, supply chain, and legal/regulatory risks will be essential going forward.
Core Business and Operations:
- Eli Lilly and Company is a global pharmaceutical company engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide
- Key products include Mounjaro, Zepbound, Verzenio, Trulicity, Jardiance, Taltz, and others
- Operates through a global research and development organization, a supply chain organization, and regional commercial organizations
- Collaborates with Boehringer Ingelheim on the Jardiance product family
Industry and Market Trends:
- Facing continued pricing pressures and impact of actions by governmental and private payers affecting pricing, reimbursement, and patient access to pharmaceuticals
- Regulatory and legislative changes, including the Inflation Reduction Act in the U.S., are expected to result in added pressure on pricing and reimbursement
- Consolidation and integration of private payers and pharmacy benefit managers increasing their leverage in negotiating with manufacturers
- Regulatory issues around manufacturing, quality, and safety leading to regulatory actions, product recalls, and supply disruptions
Recent Events:
- Acquired manufacturing facility in Pleasant Prairie, Wisconsin to expand global parenteral product manufacturing network
- Acquired POINT Biopharma Global Inc. to expand radiopharmaceutical capabilities
- Sold rights for the olanzapine portfolio, including Zyprexa, and Baqsimi to other companies
- Amended collaboration with Boehringer Ingelheim related to Jardiance product family
Risk Factors:
- Significant costs and uncertainties in the pharmaceutical R&D process
- Intense competition affecting products, pipeline, and industry
- Dependence on relatively few products and consolidated supply chain
- Expiration of intellectual property protection and competition from generics/biosimilars
- Manufacturing difficulties, disruptions, or shortages
- Pricing pressures and impact of governmental/private payer actions
- Litigation, investigations, and regulatory compliance issues
- Fluctuations in foreign currency exchange rates
Legal Matters:
- Defending against patent litigation related to Emgality
- Involved in various lawsuits and investigations related to 340B program, insulin pricing, and other pricing/access matters
- Facing lawsuits related to Actos and Mounjaro/Trulicity product liability
- Ongoing litigation related to environmental matters and Brazil facility
Management's Discussion and Analysis:
- Revenue growth driven by increased volume, partially offset by lower realized prices and unfavorable foreign exchange
- Gross margin improvement due to favorable product mix and manufacturing costs
- Increased R&D and marketing/selling expenses to support pipeline and launches
- Significant acquired IPR&D charges related to business development transactions
- Effective tax rate impacted by non-deductible IPR&D charges and discrete tax benefits
- Investing in global manufacturing capacity to meet demand for key products
- Accessing debt markets and share repurchase program to fund operations and acquisitions
Earnings calls
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Earnings Report 2025Q1 (2025-05-01)
Key takeaways
- Orforglipron is a Key Growth Driver: The positive Phase 3 data for orforglipron and its potential for oral administration position it as a significant growth driver in both diabetes and obesity markets.
- PBM Negotiations are a Critical Risk: The evolving dynamics of PBM negotiations and formulary access, particularly in the obesity market, pose a significant risk to Lilly's revenue and market share.
- Manufacturing Investments are Strategic: Lilly's substantial investments in U.S. manufacturing aim to enhance supply chain resilience and potentially mitigate the impact of tariffs and trade policies.
- Portfolio Approach is Essential: Management's emphasis on a portfolio approach, with multiple treatment options and formulations, is crucial for addressing diverse patient needs and navigating the competitive landscape.
- Pricing Transparency is a Priority: The company's commitment to pricing transparency and reducing the gap between list and net prices reflects a long-term strategy to improve affordability and access.
- External Factors Pose Uncertainty: Trade policies, tariffs, and regulatory decisions represent external factors that could significantly impact Lilly's financial performance and strategic direction.
Focus of management’s prepared remarks
- Orforglipron Development: Management highlighted positive Phase 3 clinical data for orforglipron in Type 2 diabetes, emphasizing its potential to offer injectable GLP-1-like efficacy with the convenience of an oral pill. They anticipate Phase 3 data from seven global clinical trials over the next 12 months and potential regulatory submissions for obesity by the end of 2025.
- Financial Performance and Key Products: Revenue grew 45% compared to Q1 2024, with key products (Ebglyss, Jaypirca, Kisunla, Mounjaro, Omvoh, Verzenio, and Zepbound) accounting for $7.5 billion in revenue.
- Pipeline Milestones: Key pipeline achievements included the EU approval of Jaypirca for CLL, approvals of Omvoh in the U.S., EU, and Japan for Crohn's disease, and the initiation of a Phase 3 program for Olomorasib in resected adjuvant non-small cell lung cancer.
- Manufacturing Investments: Lilly announced plans to more than double its manufacturing investment in the U.S., with over $50 billion in new U.S. manufacturing investments since 2020, including four new facilities, three of which will be API facilities.
- Capital Allocation: The company distributed $1.3 billion in dividends and executed a $1.2 billion share repurchase in Q1.
- Tariffs and Trade: While supporting the U.S. Government's goals to increase domestic investment, Lilly does not believe tariffs are the right mechanism. The announced tariffs currently in effect do not materially change Lilly's 2025 financial outlook, but expansion of tariffs or retaliatory tariffs would have a negative effect.
- Financial Results: Q1 revenue grew 45% year-over-year, driven by key products. Gross margin was 83.5%, an increase of 1 percentage point. Performance margin was 42.6%, an increase of over 11 percentage points.
- Key Product Performance: Encouraging U.S. uptake of Ebglyss in atopic dermatitis. Omvoh approved for Crohn's disease globally. Verzenio global sales grew 10%. Mounjaro sales more than doubled. Zepbound sales increased to $2.3 billion.
- R&D Updates: Following discussions with the FDA, Lilly withdrew its U.S. application for Tirzepatide in heart failure with preserved ejection fraction, requiring an additional confirmatory clinical trial. A new Phase 3 trial studying Retatrutide in patients with obesity and chronic low back pain will be initiated. A Phase 3 program for muvalaplin will be initiated later this year in atherosclerotic cardiovascular disease.
Focus of the analyst Q&A
- PBM Dynamics and Formulary Access:
- Concerns about PBMs restricting formulary access between Zepbound and Wegovy.
- Potential impact of CVS formulary announcement favoring Wegovy on market share dynamics.
- Strategies for navigating an environment where PBMs may continue to restrict access.
- Orforglipron Positioning and Indications:
- The ultimate goal for orforglipron in terms of indications beyond weight loss, including broader cardio investment, combos in INI or autoimmune, or neuropsych.
- The role of orforglipron in the core obesity and diabetes market relative to injectables.
- Potential market share for orals in the obesity and diabetes market over time.
- Orforglipron Pricing and Portfolio Strategy:
- Conceptual pricing strategy for orforglipron, considering its potential to deliver a similar profile to injectable medicines.
- The leverage gained with PBM discussions by having a portfolio of weight loss medications.
- CVS Announcement and Market Dynamics:
- Different perspectives on the CVS announcement, whether it represents a price war or an effort to provide affordable access.
- The evolution of the market between GLP-1s versus other treatments, or GLP-1s versus access considerations.
- Alzheimer's Portfolio:
- Update on the TRAILBLAZER-ALZ 3 trial, including the event accrual status and what a successful trial would look like.
- Ebglyss Launch and Peak Sales:
- How Ebglyss is tracking against ambitions for a best-in-class launch.
- Vision for peak sales and potential barriers related to competition or efficacy differentiation.
- Formulary Positioning in Obesity:
- The percentage of covered lives with a one-on-one formulary approach in obesity.
- Views on how formulary positioning will evolve in the obesity market.
- Tirzepatide and HFpEF:
- Additional details on what the FDA wants to see in regard to additional data for Tirzepatide in HFpEF.
- Pricing Headwinds:
- Whether the mid-to-high single-digit price headwind is still intact following the CVS formulary decision on Zepbound and movement in FX.
- Orforglipron Safety:
- Confirmation on whether there was no numerical imbalance on ALT above 5x in the orforglipron trial.
- Expectations for diarrhea rates in the obesity trial, especially with longer duration.
- Historical Formulary Strategies:
- Recollection of Lilly's aggressive formulary positioning with Taltz and its impact on share and sales.
- How that experience informs the outlook for Zepbound and Wegovy on the CVS formulary.
- Zepbound Coverage:
- How many current patients on Zepbound are being covered by CVS Caremark.
- Tariffs and Drug Pricing Risk:
- Discussions with the Trump administration on tariffs outside of the 232 investigation.
- Potential for MFN legislation and drug pricing risk.
- Cash Pay Approach:
- Whether Zepbound cash pay vials are available in any pharmacy chain in the U.S.
- Consideration of additional channels outside LillyDirect for cash pay.
- Whether Lilly will ever offer Zepbound pens via the cash pay route.
- Long-Term Pricing and Margins:
- Whether long-term net pricing will have to approach insulin levels for broader access to obesity treatments.
- The delta between Street models for long-term margins and management's guidance.
- Orforglipron Obesity Expectations:
- Expectations for weight loss with orforglipron in the ATTAIN obesity studies.
- Color on when GI side effects and discontinuations occurred in the ACHIEVE trial.
- Bimagrumab Phase 2 Trial:
- Update on when data from the Bimagrumab Phase 2 trial might be seen.
- Expectations for the data.
- Zepbound Access and Coverage:
- Update on Zepbound access and coverage compared to a year ago.
- Next steps, especially in light of compounders being blocked from selling campaign products.
Summary
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Financial Performance
Lilly reported a strong Q1 2025 with revenue growing 45% year-over-year. Key products contributed significantly, accounting for $7.5 billion in revenue. EPS was $3.34, including a negative impact of $1.72 from acquired IPR&D charges. Gross margin increased by 1 percentage point to 83.5%. The company reaffirmed its revenue and performance margin guidance for 2025, with EPS guidance unchanged except for the Q1 IPR&D charges.
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Revenue Drivers
Revenue growth was primarily driven by key products such as Ebglyss, Jaypirca, Kisunla, Mounjaro, Omvoh, Verzenio, and Zepbound. Mounjaro and Zepbound showed robust sales growth. U.S. revenue increased 49%, driven by volume growth, partially offset by a 7% price decline. European revenue increased 71% in constant currency, including a one-time benefit. China revenue increased 21% in constant currency, driven by Mounjaro.
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Profit Margins and Cost Management
Gross margin was 83.5%, positively impacted by improved production costs and favorable product mix, partially offset by lower realized prices. Marketing, selling, and administrative expenses increased 26% due to promotional activities. R&D expenses increased 8%, driven by late-stage asset development and early-stage research investments. Performance margin increased by over 11 percentage points to 42.6%. The effective tax rate was 20.2%, negatively impacted by non-deductible acquired IPR&D charges.
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Guidance and Outlook
The company reaffirmed its 2025 revenue and performance margin guidance. Non-GAAP earnings per share guidance is unchanged, except for Q1 charges related to acquired IPR&D. The company is monitoring the external environment regarding trade and tariffs, estimating a limited financial impact from currently announced tariffs, which has been absorbed within the 2025 guidance.
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Strategic Initiatives
Key initiatives include the development and potential launch of orforglipron, with Phase 3 data expected over the next 12 months. The company plans to submit orforglipron for obesity regulatory approval by the end of 2025. Lilly is also investing heavily in U.S. manufacturing, with over $50 billion in new investments since 2020. The company distributed $1.3 billion in dividends and executed a $1.2 billion share repurchase in Q1.
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Management Commentary
Management expressed excitement about the orforglipron data and its potential impact. They emphasized a focus on innovation and differentiation in the obesity and diabetes markets. Management also addressed concerns about tariffs, advocating for enhanced tax incentives instead. The overall tone was optimistic, highlighting strong growth and a well-positioned pipeline. CEO Dave Ricks stated the company is "well positioned to deliver strong and sustained growth going forward."
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Industry and Market Conditions
The company noted steady growth in the U.S. incretin analog market. They acknowledged competitive dynamics in the early breast cancer market but maintained Verzenio's market share. Management is closely monitoring the evolving landscape of PBM negotiations and formulary access, particularly in the obesity market. They also addressed the potential impact of tariffs and trade policies on the pharmaceutical industry.
Comparative analysis
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Benchmarks (as of 2025-05-09)
Health Care Select Sector SPDR Fund (XLV)
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Performance Comparison:
- Eli Lilly & Co. (LLY) has shown mixed performance compared to the Health Care Select Sector SPDR Fund (XLV). While LLY has significantly outperformed XLV over the 2-year and 3-year periods, it has underperformed in the shorter term, such as Year-To-Date (YTD), 1 Week, 3 Months, and 6 Months. For example, LLY's 3-year return was 158.74% compared to XLV's 9.45%, but its YTD return was -5.43% compared to XLV's -3.21%.
- The consistency of LLY's performance relative to XLV varies. In longer time frames, LLY has consistently delivered higher returns. However, in the short term, LLY's performance has been more volatile and often lags behind XLV.
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Risk and Return Analysis:
- The annualized returns show that LLY has provided higher returns than XLV over 2-year and 3-year periods. LLY's 3-year annualized return was 37.29% compared to XLV's 3.05%. However, over the 1-year period, LLY's annualized return was -2.42% compared to XLV's -6.02%.
- LLY has generally been more volatile than XLV, as indicated by the annualized volatility data. For instance, in Q2 2025, LLY's volatility reached 69.39%, while XLV's was 29.17%. This higher volatility suggests that LLY's price can fluctuate more dramatically than XLV.
- The maximum drawdown for LLY was -24.28% on 01/17/2025, while for XLV, it was -16.06% on 06/17/2022. This indicates that LLY carries a higher risk of significant peak-to-trough declines compared to XLV.
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Risk-Adjusted Performance:
- LLY generally exhibited higher Sharpe Ratios compared to XLV for most of the analyzed period, indicating better risk-adjusted returns. However, in Q4 2024 and Q1 2025, XLV's Sharpe Ratio was higher than LLY's, suggesting that XLV outperformed LLY on a risk-adjusted basis during these periods. In Q2 2025, LLY's Sharpe Ratio was 0.08, while XLV's was -0.34, indicating a recent decline in risk-adjusted returns for both, with XLV performing worse.
- The beta of LLY has generally been below 1, indicating that it is less volatile than the market. The beta values for LLY ranged from 0.3 to 0.97, while XLV's beta ranged from 0.35 to 0.65. This suggests that LLY's sensitivity to market movements is slightly more variable than XLV's.
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Overall Assessment:
- Eli Lilly & Co. (LLY) has demonstrated strong long-term performance with higher annualized returns and Sharpe Ratios compared to the Health Care Select Sector SPDR Fund (XLV). However, LLY also exhibits higher volatility and greater drawdown risk. In recent periods, LLY's risk-adjusted performance has declined, and it has underperformed XLV in the short term.
- A significant trend is the recent increase in volatility for LLY, particularly in Q3 2023 and Q2 2025. This could be due to company-specific factors or broader market conditions affecting the pharmaceutical industry. The higher beta values in certain periods also suggest that LLY's price movements can be more sensitive to overall market fluctuations.
Peers Price History(as of 2025-05-09)
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Performance Comparison:
- Eli Lilly & Co. (LLY) has shown mixed performance compared to its peers. Over the past year, LLY underperformed Johnson & Johnson (JNJ) but outperformed Pfizer Inc. (PFE). Over a 2 and 3 year period, LLY significantly outperformed both PFE and JNJ. However, more recently, LLY has shown underperformance compared to JNJ, as seen in the Year-To-Date (YTD) and 1-week returns. For example, over the last three years, LLY had a return of 158.74% compared to -48.36% for PFE and -5.27% for JNJ. However, YTD, LLY is at -5.43% while JNJ is at 7.94%.
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Risk and Return Analysis:
- Eli Lilly & Co. (LLY) has provided higher annualized returns over 2 and 3 year periods compared to Pfizer Inc. (PFE) and Johnson & Johnson (JNJ). For example, the 3-year annualized return for LLY is 37.29%, while PFE is -19.77% and JNJ is -1.79%. However, LLY's annualized volatility has also been higher, indicating a riskier investment. The maximum drawdown for LLY was -24.65% on 2025-04-10, which is less than PFE's -58.96% but more than JNJ's -18.41%, suggesting a moderate risk profile.
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Risk-Adjusted Performance:
- Eli Lilly & Co. (LLY) generally exhibited higher Sharpe Ratios compared to Pfizer Inc. (PFE) and Johnson & Johnson (JNJ) for much of the analyzed period, indicating better risk-adjusted returns. However, recently, LLY's Sharpe Ratio has decreased. The beta value for LLY has generally remained below 1, indicating that it is less volatile than the market, but more sensitive to market movements than its peers, PFE and JNJ.
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Overall Assessment:
- Eli Lilly & Co. (LLY) has demonstrated strong historical performance over the past 2-3 years, significantly outperforming Pfizer Inc. (PFE) and Johnson & Johnson (JNJ). However, recent performance has been mixed, with underperformance compared to JNJ. LLY's higher volatility and moderate drawdown suggest a riskier profile compared to JNJ, but its higher Sharpe Ratio indicates better risk-adjusted returns over certain periods. Investors should consider LLY's recent underperformance and higher volatility when making investment decisions, balancing the potential for high returns with the associated risks.
Peers Fundamentals(as of 2025-03-31)
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Market Position and Size:
- Eli Lilly & Co. (LLY) has a significantly larger market capitalization (696178.43 million) compared to Pfizer Inc. (PFE) (126670.04 million) and Johnson & Johnson (JNJ) (371647.07 million).
- Despite having a larger market cap, LLY's revenue (49003.2 million) is less than both PFE (62463 million) and JNJ (89331 million), suggesting a higher valuation multiple based on future growth expectations.
- LLY holds a dominant market position in terms of market capitalization but is smaller in terms of revenue, indicating that its valuation is based on factors beyond current sales.
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Profitability and Efficiency:
- LLY exhibits a superior Gross Profit Margin of 81.7% compared to PFE (66.93%) and JNJ (68.24%), indicating efficient cost management and a focus on high-margin products.
- LLY also shows strong EBITDA and EBIT Margins at 43.98% and 40.25%, respectively, outperforming PFE (38.57% and 27.53%) and JNJ (32% and 23.83%).
- LLY's Net Profit Margin of 22.66% is slightly less than JNJ's 24.41% but significantly greater than PFE's 12.59%.
- LLY is overperforming in profitability metrics compared to both its peers and the industry average, particularly in gross profit, EBITDA, and EBIT margins.
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Financial Health and Stability:
- LLY's Current Ratio is 1.37, slightly greater than PFE's and JNJ's 1.26, indicating adequate short-term liquidity.
- LLY has a significantly higher Total Debt to Total Equity Ratio of 244.32 compared to PFE (68.75) and JNJ (66.9), suggesting a more leveraged financial structure.
- LLY's Debt / EBITDA ratio is 1.79, less than PFE's 2.58 and slightly less than JNJ's 1.83, indicating that it can manage its debt obligations.
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Valuation and Market Perception:
- LLY's Enterprise Value To Sales ratio is 15.9, significantly greater than PFE (3.03) and JNJ (4.59), indicating a higher market valuation relative to sales.
- LLY's Enterprise Value To EBITDA ratio is 36.16, significantly greater than PFE (7.85) and JNJ (14.35), suggesting a premium valuation based on earnings potential.
- LLY's Price To Earnings ratio is 60.85, significantly greater than PFE (16.15) and JNJ (17.14), indicating that investors are willing to pay a premium for LLY's earnings due to its growth prospects.
- LLY's valuation metrics are substantially higher than its peers, indicating that the market has high expectations for its future growth and profitability.
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Cash Flow and Capital Management:
- LLY's Net Operating Cash Flow is 9317.5 million, less than PFE's 13988 million and JNJ's 24783 million.
- LLY's Total Capital Expenditure is 10587.3 million, significantly greater than PFE's 2769 million and JNJ's 4426 million, suggesting heavy investment in growth initiatives.
- LLY's Free Cash Flow is -1269.8 million, significantly less than PFE's 11219 million and JNJ's 20357 million, indicating potential short-term liquidity concerns.
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Growth and Future Prospect:
- LLY shows consistently higher growth in Sales/Revenue, EBITDA, Net Income, and Basic Earnings per Share compared to the peer group average.
- LLY's 3-year CAGR is greater than its 5-year CAGR for Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, and EBIT Margin, suggesting an acceleration in growth rates over the recent three-year period.
- LLY's superior growth in revenue, earnings, and profitability metrics suggests a strong competitive position and positive future prospects.
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Potential for Investment:
- Eli Lilly & Co. (LLY) presents a mixed investment picture. Its high market capitalization, strong profitability, and superior growth metrics make it an attractive investment option.
- However, its negative free cash flow, high debt-to-equity ratio, and high valuation multiples suggest that it may be overvalued and carries higher risk.
- Investors should carefully consider LLY's growth potential, cash flow generation, and debt management before making an investment decision.
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Key Risks and Considerations:
- LLY's negative free cash flow indicates potential short-term liquidity concerns and reliance on external financing.
- LLY's high Total Debt to Total Equity Ratio suggests a more leveraged financial structure compared to peers.
- LLY's high valuation multiples suggest that it may be overvalued and carries higher risk.
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Overall Assessment:
- Eli Lilly & Co. (LLY) exhibits strong profitability and growth metrics, with superior gross profit margins, return on equity, and revenue growth compared to its peers.
- However, its negative free cash flow and high debt-to-equity ratio raise concerns about its short-term liquidity and financial leverage.
- Overall, LLY's financial health is robust, driven by its strong earnings and growth potential, but it requires careful monitoring of its cash flow and debt management.
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