Intense Competition Pressures Eli Lilly, Leerink Downgrades

Despite a strong quarter, analysts see a difficult road ahead for Eli Lilly And Co (NYSE: LLY).

“Even though Eli Lilly's launch execution has been outstanding," Leerink Managing Director Seamus Fernandez said, "the ways for LLY investors to win in our view appear limited when NVO's SUSTAIN 7 reads out this quarter, and predicting the outcome of the Alimta IPR likely is no better than 50/50 (despite LLY winning at trial and on appeal in the usual courts)."

Fernandez downgraded Eli Lilly to Market Perform with a price target between $90 and $93.

Further, following Eli Lilly’s earnings call, UBS analyst Marc Goodman believes the company's earnings beat and guidance raise was simply not good enough. Shares of Eli Lilly fell over 3 percent after Monday’s report.

“In addition to some residual Baricitinib disappointment and some sector rotation out of pharma, investors are pointing to weakness in Animal Health, positive pricing from a few older products (Forteo, Cialis) driving some of the upside, fewer catalysts in 2H17 as reasons for the negative stock performance,” Goodman said as he maintained his Neutral rating and $85 price target.

See Also: 19% Upside Predicted For Biogen, Goldman Upgrades On Strength Of Alzheimer's Drug

4 Reasons Behind The Bearish Calls

1. Animal Health remains a notably weak franchise, with declining metrics.
2. Despite the excitement around JAK inhibitors, “we believe the regulatory update for Olumiant removes upside optionality in rheumatoid arthritis (RA) and possibly other indications given concerns over thrombosis (DVT/PE) risk,” Fernandez wrote.
3. SUSTAIN 7 approaches a no-win situation for Trulicity according to Fernandez. "While we expect Trulicity growth to continue, we believe the range of outcomes weigh against Lilly & Co. given semaglutide’s importance to NVO’s diabetes portfolio,” he said.
4. Everyone already expects a positive Alimta IPR ruling, which leaves little room for upside for Eli Lilly investors. 

Shares of Eli Lilly were trading at $81.10 in Wednesday’s session.

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