Lilly Has 40% Upside, Despite Alzheimer’s Drug Failure, JPM Says

Shares of Eli Lilly (LLY) are down nearly 13% this morning after a late-stage Alzheimer’s drug trial failed to produce expected results.

Biogen(BIIB), down nearly 6% today, also is working on an Alzheimer’s treatment; Merck (MRK) shareswere down 1% in recent trading.

Lilly was testing the drug as a treatment for mild dementia due to Alzheimer’s disease.Credit Suisse analysts were hopeful the drug trial would show “a statistically significant impact on cognition.”MarketWatch reports:

“Eli Lilly said it would not pursue approval for the drug to treat mild dementia due to Alzheimers disease and that it will ‘evaluate the impact of these results on the development plans for solanezumab and our other Alzheimers pipeline assets’ … More specifics about the solanezumab drug, expected the night of Dec. 9 during a meeting of the Clinical Trials on Alzheimers Disease (CTAD), could have repercussions for whats called the beta amyloid hypothesis in Alzheimers disease treatments, which target protein fragments that some believe are responsible for the disease …”

On Nov. 15, J.P. Morgan analysts Chris Schott, Aditi Singhania, Dana Flanders and Christopher Neyor noted that trial success had a low probability. But they kept their$95 price target on the stock, noting the drug pipeline offers other opportunities. Their target implies upside of more than 40% from a recent price near $66. They wrote:

“… On solanezumab … While the FDA recommends both cognitive and function endpoints for Alzheimers drug approvals, we expect the agency to review solanezumab on the totality of evidence, and we would not be surprised to see a cognitive benefit coupled with a trend in secondary functional endpoints be sufficient for approval … regardless of the solanezumab outcome, we see a diverse range of new product opportunities supporting LLYs top-line growth target. We see a range of new product opportunities at Lilly that should support the companys growth targets, and are forecasting ~5% top-line and low to mid-teens EPS growth through 2020 excluding risk-adjusted solanezumab sales. This growth is driven by a number of $1+ billion product opportunities such as Trulicity, Jardiance, Taltz, baricitinib and abemaciclib. Assuming a 10-15% sell off on a solanezumab failure, LLY share would trade at ~16.5x 2017 EPS with a ~3% dividend yield, which we believe is highly attractive given the diversified growth profile highlighted above … “

See the MarketWatch story, “What Eli Lillys hard fall in Alzheimers treatment race means for its competitors” and our posts Lilly and Biogen: A Fertile Period In Alzheimers Research and Eli Lilly: This is Gonna Be Good.

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