DAY (14/15): PRRN CHALLENGE!
Hello! I am Priya, and thank you so much for being here! :)
03/04/2025
Quick disclaimer: There are a lot of medical and pharmaceutical terms mentioned below. Kindly note that this blog is simply to reinforce my learning and spread knowledge. I do not have a pharmaceutical background, so kindly make some provision for scientific inaccuracies, which may be possible! :)
Welcome to Day 14!
Today I wrapped up Eli Lilly's Q4 2024 concall, and spared some time to read some exciting news articles. With that, the Q4'24 concalls of all 3 companies come to an end!
Today's reading was mostly focussed on a few grey areas in Eli Lilly's business and the pharma sector at large. These grey areas are either ones that seem to cause hindrance to smooth operations or are some general insights I've infered from my reading.
1) FLAGBEARING SEGMENTS
We had briefly discussed this idea yesterday, where we said Eli Lilly is working on diseases like Alzheimer's and Sleep Apnea, yet both these diseases do not have well rounded infrastructures in place, where they can be diagnosed easily or even treated properly.
Eli Lilly is overcoming this by actively working with many healthcare partners in order to enhance their diagnostic capabilities and medical education, however the fact that Eli Lilly needs to themselves create an environment conducive for their products to flourish, is slightly worrysome.
While it is important to innovate in areas that have lesser competition, the fact that the company needs to invest in enhacing healthcare facilities in their desired geographies themselves might mean they are delaying the maturity stage of their products, which might be harmful from a cash flow perspective.
A possible recommendation here would be that maybe these efforts should have commenced a little earlier, before the products were launched, paving the way for the product to have a great start.
2) TRUMP TARIFFS
This segment is taken straight from some insightful news articles that I read today. Today Trump released his list of tariffs, where pharma goods were 'excluded' from the list. However this is because he plans to launch an entirely seperate list of tarrifs on pharma companies, that he himself says will be huge.
Now, Eli Lilly and pretty much all pharma companies have set up plants in Ireland and Dublin, specifically, because of their generous corporate tax policies and ease of doing business. However, Trump's perspective is that through these policies the investments of many US companies is being redirected to Ireland and this is hurting US tax revenue.
To overcome this he is suggesting putting across hefty tariffs on pharma goods being imported from Ireland, and this will naturally maximize costs of production, to an extent that some companies are actually thinking about relocating their production premises to the US.
If actually implemented, this will be detrimental to Eli Lilly's margins as their cost of production will increase, and if the IRA provisions also come into place, where some of their drugs will undergo 'price fixing', then their margins will be severely comprimised.
3) DEVELOPMENTS IN PIPELINE
One very positive insight I have learnt about Orforglipron is that since it is in a consumable form, it does not have to compete with Novo Nordisk directly. This enhances flexibility for Eli Lilly, to decide its supply-demand dynamics. In the case of their injectibles, where they do compete with Novo, minute differences can often result in either unfulfilled demand or losing pricing power, so this is actually a good aspect of their development.
On the flip side, when I was reading their earnings call, an analyst posed a question about EL's development Bimagrumab, which when combined with Trizempide (their drug Mounjaro) is expected to result in weight loss while retaining lean mass. However, now the BOD is of the opinion that none of their drugs seem to cause an adverse effect on lean mass anyway and hence advertising this benefit alone may not make sense.
They are currently looking to identify alternative benefits, but this *may* be a slight cause of concern since the company has already been projecting one major/critical outcome of this development which they may have to revise, and this could cause some confusion in the minds of users and prescribers, even regarding their original products.
Perhaps here the main learning is that such outcomes shouldn't be publicized too early on in the trial, especially when such an evident fact is available with the management.
The last but extremely critical insight I gained was about Relaxin. So Relaxin is a hormone that the human body produces during pregnancy to dilate the cervix. Eli Lilly was exploring the use of this hormone in order to treat chronic kindey disease, however they discontinued that project because it wasn't reaping the necessary benefits.
This is absolutely fine and 100% understandable. However, another company Tectonic Therapeutics was exploring the use of this hormone in order to treat pulmonary hypertension in the presence of heart failure. After Eli Lilly discontinued this project, Tectonic's share fell by 40%!
The main implication here is that as a sector all companies are quite closely linked and the information from one company's R&D often affects the share prices of other companies. This may be transient, however is an important factor that affects share price movements in this sector.
And to close up I have 2 very interesting pieces of news that I've read:
1) Camilla Sylvest, Novo Nordisk's EVP for Commercial Strategy and Corporate affairs resigned from her post today. She was a very prominent figure in the Earnings calls, and brought about very interesting viewpoints :)
2) Assura, a healthcare Real Estate Investment Trust based in UK, has received 7 bids for takeover in the last 2 months! This isn't exactly related to pharma however this bid seems really exciting, and whether the company will prioritize a cash offer or its stock market listing is a fundamental aspect of their decision, which will be insightful to see!
I'll see you on day 15! :)
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