Those are stiff headwinds, but Eli Lilly thinks it has enough new drugs in the wings to make up for slowing sales of those medications.
In diabetes alone, it has four drugs that are either in midstage phase 2 trials or late-stage phase 3 trials. And it recently entered into trials of a closed-loop, automated insulin-delivery system that could do away with finger sticks and insulin injections.
Eli Lilly’s phase 3 diabetes drugs include an ultrafast-acting insulin that can compete against Novo Nordisk’s Fiasp, and a hypoglycemia treatment that can be inhaled by patients with ultralow blood-sugar levels.
In phase 2, the company is working on a DACRA (dual amylin calcitonin receptor agonist), and on a drug that’s a coagonist for both the GIP (gastric inhibitory polypeptide) receptor and the GLP-1 (glucagon-like peptide-1) receptor. If successful, the DACRA could control weight and improve insulin sensitivity, while the GIP/GLP-1 drug could increase insulin production by more than drugs targeting GLP-1 alone.
Automated insulin systems like the one Eli Lilly is developing combine a monitor that continuously evaluates blood-sugar levels with a wearable pump that automatically doses insulin based on the monitor’s readings. So far, Medtronic (NYSE:MDT) and Tandem Diabetes (NASDAQ:TNDM) are the only companies that have secured FDA approval for closed-loop systems. Medtronic’s MiniMed 670G became available in 2017, and Tandem’s system is expected to become available in August 2018.
Further out, Eli Lilly is conducting early-stage research to turn adult stem cells into insulin-producing beta cells. If successful, these engineered stem cells could functionally restore insulin production in Type 1 patients, giving diabetics an entirely new way to fight back against their disease. In a move that could accelerate the development of this approach, Eli Lilly recently acquired the rights to a technology that encapsulates cells to minimize the likelihood of an immune-system attack. If that encapsulation approach works, it would overcome one of the biggest obstacles associated with introducing engineered cells into patients.
In cancer, the company also has some intriguing studies going on, including phase 3 trials of Verzenio as an adjuvant treatment for breast cancer, and of Cyramza for bladder cancer, liver cancer, and non-small-cell lung cancer.
In phase 2, it’s studying three entirely new cancer drugs: merestinib, an MET kinase inhibitor; LY3023414, a PI3 kinase/mTOR dual inhibitor; and prexasertib, which inhibits Chk1 (checkpoint kinase 1), a global regulator of the mammalian cell cycle. Merestinib is being studied in non-small-cell lung cancer; LY3023414 is being studied in various cancers including relapsing and recurring solid-tumor cancers; and prexasertib is being studied in various cancers including small-cell lung cancer.
Drugs targeting other indications that could move the revenue needle are also in the works. For instance, the FDA is currently evaluating Eli Lilly’s migraine drug galcanezumab. And Eli Lilly, in collaboration with Pfizer, has tanezumab in phase 3 trials for cancer pain, chronic lower-back pain, and osteoarthritis pain.
In immunology, the company’s recently approved rheumatoid arthritis drug Olumiant is in phase 3 trials for eczema, and its already-approved psoriasis drug, Taltz, is in development for axial spondyloarthritis. Taltz and Olumiant contributed nearly $180 million to sales in Q1 2018, so expanding labels could be important to growth. Further back in the pipeline is a phase 2 study of mirikizumab for psoriasis, Crohn’s disease, and ulcerative colitis.
Is Eli Lilly and Company a buy?
There’s an undeniable need for new and better treatments for diabetes and cancer. And as more people are diagnosed with these diseases, that should provide plenty of opportunity for Eli Lilly to grow its sales and continue returning money to investors.
Last year, the company paid investors $2.08 per share in dividends, up from $2.04 per share in 2017; based on June 2018 share prices, that translates into a healthy dividend yield of 2.6%.
The big risk here is that Eli Lilly’s new drugs, and the drugs in its pipeline, fail to replace declining sales for its older products. But management is optimistic that it can grow revenue by 5% per year through 2020. Given the size of the markets that Eli Lilly targets, and its long track record of successfully developing drugs in important indications, I’m willing to give it the benefit of the doubt, and suggest it as a solid addition to income portfolios.