Argus Shares Eli Lilly's Optimism, Upgrades To Buy

If an 8-percent quarterly dividend increase is any indication, Eli Lilly and Co (NYSE: LLY) is confident of its growth potential.

Its optimism echoes with one Wall Street analyst. 

The Rating

Argus analyst David Toung upgraded Eli Lilly from Hold to Buy with a $115 price target.

The Thesis

Toung sees 2018 growth catalysts in potential regulatory approvals, new products, indication expansions for existing treatments and a possible spinoff of the Elanco animal health business. (See the analyst's track record here.) 

The Food and Drug Administration is expected to rule on baricitinib for rheumatoid arthritis, galcanezumab for migraine prevention and Verzenzio as a first-line breast cancer treatment by the middle of 2018.

Toung has particular optimism for baricitinib, which is already approved in Europe. Rival treatments in Pfizer Inc. (NYSE: PFE)’s Xeljanz and AbbVie Inc (NYSE: ABBV)’s Humira respectively seized $793 million in the U.S. in the first three quarters of 2017 and $4.8 billion worldwide annually for the rheumatoid arthritis indication.

The launches of Verzenzio as a second-line breast cancer treatment and Taltz for active psoriatic arthritis are expected to drive additional growth, the analyst said. 

“To be sure, Lilly is coping with slower sales of mature products that face patent expiration and the loss of exclusivity,” Toung said, noting slower sales in Cialis, Forteo and Effient. “However, we expect it to generate low double-digit EPS growth from margin expansion and the new products mentioned above.”

Trulicity, Basaglar, Jardiance, Cyramza and Lartruvo are forecasted to further offset sales declines in established products, Toung said. 

Price Change

At the time of publication, Eli Lilly was trading up nearly 1 percent at $86.26. 

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