Hold on it’s going to be a rocky ride

Looking at the earnings released by Lilly this morning one just might come away with the impression that Lilly has immunity to the coronavirus and its economic impact. Looking specifically at their diabetes franchise it looks like business as usual. Trulicity, Basaglar and Jardiance all experienced solid growth, while Humalog sales slightly decreased but this had more to do with channel mix/rebates then volume which grew.

To some extent we aren’t overly surprised by these results as we have been noting that coronavirus or not patients still need their meds. The company did note in the earnings press release;

“The company estimates that revenue in the first quarter of 2020 for many of its products was favorably impacted by increased customer buying patterns and patient prescription trends resulting from the COVID-19 pandemic that increased revenue by approximately $250 million worldwide, including approximately $200 million in the U.S. and approximately $50 million outside the U.S. The company believes that the increase in U.S. revenue from COVID-19 primarily impacted its portfolio of diabetes medicines, with estimated increases of approximately $70 million to $80 million for insulin products and approximately $30 million to $40 million for Trulicity. The company also estimates that U.S. revenue for Taltz was favorably impacted by approximately $20 million to $25 million.”

The company noted during their prepared remarks this gain related primarily to wholesalers and patients stocking up on drugs and likely will be a short-term benefit. CEO Dave Ricks stated that he believes the company will experience headwinds later in the year as buying patterns go back to normal. He also pointed out something we noted that new prescriptions will likely be adversely impacted given patients’ inability to see their physician. Simply put the coronavirus is providing a short-term benefit which will mitigate over time.

Longer term like so many Lilly is uncertain just what life will be like when this crisis ends. Being prudent the company is moving cautiously forward erring on the negative side. Frankly there are just too many unknowns to be anything but cautious. We further believe we will see others in the space, i.e. Novo Nordisk follow a similar cautious path.

A few comments as we move further into earnings season;

1. There is no playbook for what we are going through. In this unpredictable time everyone is looking for some sort of parallel, a time in our past which they can use as a model moving forward. Unfortunately there is no parallel which means the playbooks used in the past are basically worthless. We hate to be blunt here but for most companies with all their data analytics going forward it’s pretty much WAG- one huge wild ass guess.

2. Although very early in earnings season we appreciate the incredible candor from the companies, another trend we anticipate continuing. Not to beat a dead horse but with so much uncertainty it’s incredibly difficult to provide any guidance.

3. As we anticipated first quarter results are only providing a partial picture of the true impact of the crisis. The stockpiling of drugs seen today with Lilly combined with fewer orders later in the year as inventory levels go back to normal combined with the anticipated lower new prescription growth will become much clearer with second quarter results.

Perhaps the best way to think about all this as we move forward is look at this crisis as very complex puzzle with lots of moving parts and uncertain variables. Without a vaccine there will be no true end to the crisis. Even when social distancing ends and the economy begins to reopen no one really knows what this will look like. We remain confident in companies like Lilly as they are prudently moving forward taking the necessary steps to insure long term viability.

As Momma Kliff used to say it’s going to be a rocky ride as we move forward so best to fasten your seat belts securely and hold on.