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with shares of Eli Lilly (LLY 0.84%) With an impressive 59% growth in 2023, it’s no secret that investors want to know what the company has in store for 2024.
Fortunately, there are quite a few clues about what will happen next, including from senior management, and the outlook is bright.
The buying spree continues
while talking at JP MorganAt the annual healthcare conference on January 9, Eli Lilly CEO David Ricks said to the countless biotech operators in the crowd, “We are open to outside innovation.” We are doing business with you,” are just a few choice words. He indicated that Eli Lilly will continue to seek attractive opportunities to collaborate on research and development (R&D), including outright acquisitions of promising biotech companies and their pipeline programs. But as shareholders are probably already aware, such a position is nothing new.
Late last year, Eli Lilly acquired oncology business Point BioPharma for $1.4 billion. The company also signed an agreement worth up to $494 million in milestone payments with Fauna Bio, a private biotechnology company studying hibernation in mammals to develop drugs to treat obesity. And in early 2023, Eli Lilly dropped $1.9 billion on Versanis Bio, a biotech pursuing a weight loss treatment that could be a natural companion to its recently launched anti-obesity drug Zepbound.
These are just some of its biggest plays. Over the past 12 months, Eli Lilly has launched several other collaborations.
What is new is an aggressive change in pharmaceutical companies’ approach to what is considered to be within the scope of a potentially attractive deal. Previously, the company focused on acquiring and partnering with pre-revenue biotech companies to strengthen its pipeline, preferring to only spend guaranteed amounts on early-stage programs with a low chance of success. But now the CEO is suggesting to Eli Lilly: We are willing to pay for quality assets, even if they are in late stages of development or even commercialization.
In other words, investors should be prepared for the company’s trading pace to accelerate further. Also consider that management may burn through cash reserves or take on new debt in the name of exiting a significant acquisition loop.
There are many catalysts
A more aggressive business development strategy is an overall bullish factor. Being more aggressive in acquiring biotechs that are more mature than typical pharmaceutical acquisition targets means that you can acquire assets that competitors prefer. novo nordisk I wish I could, but I’m afraid of paying too much.
At the same time, the risk of companies overextending is real. As of the third quarter, Eli Lilly had cash, equivalents, and short-term investments of just $2.6 billion, and debt was $20.3 billion. Nearly $5 billion in 12-month (TTM) net income means the company won’t go bankrupt any time soon, but quantity is no substitute for quality in business development over the long term. Given the number of newly purchased programs, it’s unlikely that the stock will benefit from struggles in clinical trials over the next few years.
The good news is that Eli Lilly has plenty of opportunities to impress the market with positive catalysts in 2024 and beyond. As in 2023, the biggest stories for the company this year are the type 2 diabetes drug Munjaro, the obesity drug Zepbound, and a small number of late-stage companies studying other approaches to treating those conditions. It’s probably about clinical programs. Revenue from both will increase rapidly.
And, although there are no guarantees, many of the previously purchased metabolic disease assets may also be introduced into the clinic. So be prepared for this stock to continue rising in the short term.
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