5 Reasons Eli Lilly Investors Look Can Look Past Lartruvo's Failure

Stopping promotion of a new cancer therapy after a confirmatory trial proves it's no better than old-fashioned chemotherapy is the sort of disaster that tanks most drugmaker stocks. More than two years after earning an accelerated approval, Lartruvo from Eli Lilly (NYSE:LLY) failed to improve patients chances of long-term survival, but the stock has hardly budged.

The Lartruvo debacle led Eli Lilly to revise 2019 sales and earnings estimates downwards, but the shares have remained resilient for more reasons than one. Here's what investors noticed in Eli Lilly's fourth-quarter earnings report that left them relaxed enough to look right past the recent Lartruvo failure.

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1. It wasn't a huge contributor 

Lartruvo was the first new treatment to earn approval for the treatment of soft-tissue sarcoma in 2016, and its commercial performance has been good but not great. Fourth-quarter sales rose 41% to an annualized $332 million run rate, thanks to the drug's more recent European approval. In the U.S. market, though, Lartruvo sales had already tapered off to a 20% gain over the previous year, which suggests peak sales probably wouldn't pass $1 billion annually.

Lartruvo earned an accelerated approval from the Food and Drug Administration (FDA) to treat certain patients with soft-tissue sarcoma, after adding it to standard chemotherapy improved patients chances of long-term survival during a phase 2 study. The mid-stage results were strong enough to be considered statistically significant, but the benefit didn't hold up during a larger study the FDA had required to grant a full approval.

Lilly hasn't shared phase 3 trial results yet, but adding Lartruvo to standard chemo didn't lead to an overall survival benefit compared to chemo on its own. The company has stopped promoting the therapy and expects to record a $0.13-per-share charge this year, which works out to just 2.3% of adjusted earnings expectations for the year.

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2. Overcoming industry headwinds

Earlier this year, Johnson & Johnson made big pharma investors nervous with a dim outlook due to the same U.S. pricing pressure that from insurers that's been affecting peers across the industry. Eli Lilly has also been complaining about insurers, and the intermediaries they hire to negotiate for them, but that didn't stop the company's U.S. pharmaceutical sales from rising 10% in 2018. 

Eli Lilly depends on U.S. pharmaceutical sales for half of total revenue, and pricing pressure led to a 6% revenue loss during the fourth quarter. Thanks to increased volume, though, the company was able to turn that loss into a 6% gain.

3. Leading in diabetes

In 2015, there were 30.3 million Americans with diabetes and another 84.1 million were at risk of developing type 2 diabetes within five years. Since its launch in 2014, Trulicity sales have soared and continued growth among this large potential patient population is a big reason investors aren't too upset about the loss of Lartruvo. Although Lilly appears to have agreed to some deep discounts for Trulicity, sales of the weekly GLP-1 injection grew 58% last year to $3.2 billion.

Lilly's fast-acting insulin lispro injection, Humalog, earned its first approval 23 years ago, and it still has a 47% share of prescriptions in the rising U.S. market. In 2018, Humalog sales rose 5% to $3.0 billion, and it seems like it could go on forever. Before you get too excited, it's important to remember the main patents that protected Humalog's exclusivity expired long ago and the FDA approved a similar version of insulin lispro over a year ago.

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4. Re-energized oncology program

The FDA has already approved generic versions of Lilly's blockbuster cancer therapy, Alimta, but they're being held up by a vitamin regimen patent. Lilly relies on Alimta sales for around 9% of total revenue. Investors aren't too bothered about Alimta or Lartruvo thanks to an oncology division charged up by the recent acquisition of Loxo Pharmaceuticals (NASDAQ:LOXO).

Loxo started raising public money just four and a half years ago, and it's already had more success than the vast majority of biotech start-ups experience in their first decade. In return for $8.0 billion in cash, Lilly will receive a recently approved oral cancer therapy called, Vitrakvi for the treatment of patients with genetically defined tumors. Lilly also received LOXO-292, which is another treatment for genetically defined tumors that's on pace to earn an approval in 2020.

A year ago, the FDA approved Lilly's Verzenio for the treatment of the same breast cancer patients that have made Ibrance into a blockbuster with $4.1 billion in sales last year. These two drugs work the same, but it looks like Lilly's has a slight edge. By the end of 2018, Verzenio had a 19% share of new prescriptions, which suggests it can produce blockbuster sales for Lilly in another year or two.

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5. Headache relief

Lilly investors can also look forward to growing sales of the third new treatment for the prevention of migraine headaches. Emgality launched in October months after competing treatments from Amgen (NASDAQ:AMGN) and Teva Pharmaceuticals (NYSE:TEVA) late last year.

Aimovig from Amgen had a head start that has dwindled to about 55% of new-to-brand prescriptions. Since its launch, Emgality's share of new scripts has already grown to around one-fifth.

Frequent migraines affect millions of Americans and lead to billions in lost earnings for patients and their employers. A significant share of the addressable population receiving the treatments monthly could drive annual sales way past $1 billion in a couple years.

More to come

Eli Lilly also has a promising immunology lineup, and too many potential growth drivers in early to mid-stage development to mention. This big pharma may be driving into the same headwinds as its peers, but it has a much bigger engine.