Like all major companies, Lilly is weathering challenges associated with the COVID-19 pandemic. And while the drugmaker has reason to be optimistic about the future, for the present, one key medicine is lagging expectations.
Out of the gate on Tuesday’s conference call, Lilly CEO David Ricks acknowledged the company missed analysts’ projections. The reason? The company’s obligations to pay for drug discounts during the Medicare coverage gap were “meaningful,” he said, particularly for Type 2 diabetes drug Trulicity.
Trulicity posted $1.11 billion in third-quarter sales, a 9% increase versus the same period last year, but a decline from $1.23 billion during the second quarter of 2020. The drug missed analysts' sales estimates during the third quarter, Cantor Fitzgerald analyst Louise Chen wrote in a note to clients.
The company is offering higher rebates to payers to “maintain excellent access,” and it's partially offsetting those with list price increases, according to the company's investor presentation (slide 10). Those factors combined led to a 2% price decline in the U.S. for the drug during the quarter.
The bigger pricing decline came from the changing mix of insurance coverage for Trulicity patients. More patients are on government insurance plans than before, resulting in a 6% price decline during the third quarter. The “rapid” growth in Medicaid and other insurance plans “drove profitable top-line sales,” the company said, but hurt net prices.
Early in the pandemic, the company was worried that job losses would make it harder for people to access Trulicity on commercial plans, so Lilly prioritized access in Medicaid, Lilly’s diabetes president Mike Mason said on Tuesday’s call.
But even in the face of diabetes competition from Novo Nordisk, Trulicity “continues to hold market share leadership,” he added.
All told, Trulicity and a group of other new drugs contributed 52% of Lilly’s total third-quarter sales, and the company posted an overall 5% revenue increase despite the challenges.
With the performance, Lilly lowered its earnings per share guidance for the year to a range of $6.28 to $6.40, down from a prior range of $6.48 to $6.68. The company didn’t adjust its revenue guidance, but it acknowledged that the range—$23.7 billion to $24.2 billion—includes a potential contribution from COVID-19 therapies at the high end. It isn’t yet known whether the company’s COVID-19 antibody will win an FDA emergency use authorization, and the NIH on Tuesday ended a trial in hospitalized patients.
Lilly’s guidance also assumes $400 million in COVID-19-related research costs this year.
While Ricks said pricing changes can have a “volatile” impact on revenue and that Lilly has seen some “choppiness” so far this year, he feels the drugmaker is well-positioned for the future due to its stable of growth meds, its pipeline and its lack off losses of exclusivity (LOEs) in the coming years.
Cantor Fitzgerald’s Chen agrees. In a Tuesday morning note to clients, she wrote that Lilly’s “earnings profile continues to look favorable when compared with those of its peers.” The company is “entering a period of earnings growth unencumbered by large LOEs and bolstered by multiple pipeline readouts of first-in-class/best-in-class compounds,” she added.