Lilly’s COVID-19 antibody drugs are a top seller this quarter, but investors aren’t that excited


Eli Lilly’s COVID-19 monoclonal antibody treatments brought in $810.1 million in global sales in the first three months of the year, but investors remain largely lukewarm about therapies that they expect to have a short lifespan.

Lilly’s
LLY,
-2.68%

stock was down 2.0% in trading on Tuesday after the drug maker announced first-quarter earnings for 2021.

The immediate upside is that Lilly’s COVID-19 antibody therapies are already one of the company’s top-selling drugs, coming in only second to diabetes drug Trulicity, which generated $1.45 billion in sales in the first quarter of 2021. Yet sales of the antibodies missed consensus by $73 million and overall revenue fell short, as well, according Mizuho Securities analyst Vamil Divan.

Read: Vaccines are here. That’s no reason to call off the hunt for effective COVID-19 treatments.

Lilly’s COVID-19 antibody treatment bamlanivimab had initially received emergency-use authorization in November. The Food and Drug Administration then authorized a combination of bamlanivimab and another monoclonal antibody, etesevimab, in February; however, as new variants in the U.S. began to circulate that lessened the effectiveness of bamlanivimab, federal regulators pulled back on distribution in hard-hit states before pulling the EUA for the standalone therapy altogether in mid-April.

This coupled with increased vaccination rates, lower-than-expected utilization of the antibodies, and a restructuring of the contract Lilly inked with the U.S. government for its antibody treatment (as a result of the revoked balmlanivimab EUA) set the stage for a wobblier financial performance.

“We assumed lower sales of COVID-19 antibodies would impact the quarter and guidance,” Divan wrote in an investor note. “But the extent of the [overall] miss, especially for important products such as Taltz and Verzenio, is surprising to us.”

It would seem that brand-new drugs on track for blockbuster status in the first half of the year would be a reason for investors to cheer. But much of Lilly’s quarterly disclosure focused on separating the financial performance of its COVID-19 antibody drugs from the company’s core revenue base, which includes Trulicity and breast-cancer drug Verzenio, and seeking to reassure investors about the strength of those products.

“We realize for those keeping score on sell-side model accuracy [there is] perhaps some disappointment,” Lilly CEO David Ricks said Tuesday, according to a FactSet transcript of the earnings call. “Nonetheless, underneath all that is a strong and growing core business for Lilly and a significant number of positive, even compelling, pipeline readouts in the quarter to support long-term growth across all of our core therapy areas.”

This is likely going to be an ongoing issue for drug makers that have participated in the pharmaceutical arms race during the COVID-19 pandemic.

Developing therapies or vaccines that will keep people healthy and economies thrumming is a good — and even temporarily lucrative — thing, but spending millions of dollars to develop and manufacture a product that may no longer be necessary in a few years is much less appetizing to longtime pharmaceutical investors.

Lilly said its COVID-19 antibody therapies contributed to lower gross margins, noting that there were additional charges based on excess supply of bamlanivimab after utilization slowed and the EUA was revoked.

In addition, the company’s research and development costs jumped 21% year-over-year, driven “primarily” by $220 million in spending on the antibody treatments and on Olumiant, an rheumatoid arthritis drug it markets with Incyte Corp.
INCY,
-1.14%

that is being tested as a treatment for severely ill COVID-19 patients. 

See also: Eli Lilly asks FDA to revoke EUA for COVID antibody treatment alone to speed transition to combination therapy

Further, Lilly’s updated financial guidance for the year is expected to be impacted by lower demand for the antibodies and higher R&D costs.

Lilly CFO Anat Ashkenazi told investors that the company had narrowed the revenue range for these therapies to $1.0 billion to $1.5 billion in 2021, from previous expectations of $1.0 billion to $2.0 billion.

“Based on the rollout of the vaccine across major markets, current antibody utilization rates, existing U.S. government bamlanivimab supply and the transition to only supply bamlanivimab and etesevimab administered together in the U.S., we believe this updated range contemplates a variety of potential scenarios,” he said.

Lilly’s stock has gained 8.1% so far this year, while the broader S&P 500
SPX,
-0.02%

is up 11.5%.



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