Eli Lilly Stock Is Surging on Hope for Alzheimer’s Drug. Analyst Says It Won’t Last.
The big pharma firm Eli Lilly’s promising data on its experimental Alzheimer’s treatment has thrilled investors, sending shares of the stock up 19.3% over the past week. But in a note out Wednesday, Citi Research analyst Andrew Baum warns that the drug, called donanemab, has a rocky road ahead.
“We are doubtful that the stock will be able to sustain ever-higher expectations in the absence of confirmatory TRAILBLAZER-ALZ2 data, given the litany of historical failed phase III trials” for Alzheimer’s disease, Baum wrote, using the name of the donanemab trial.
Lilly has said it will provide detailed data to back up last week’s announcement about the trial on March 13. Baum issued a “catalyst watch” in advance of that announcement, saying that he expected mounting enthusiasm among investors.
“While market expectations have materially increased following LLY’s top-line data release earlier this month, we anticipate expectations for donanemab to continue to rise ahead of and shortly after the detailed TRAILBLAZER-ALZ presentation on 13-Mar,” he wrote.
The analyst, who rates Lilly (ticker: LLY) at Neutral, raised his target for the stock price to $210, from $146. The stock closed Tuesday at $198.48.
He said that while the stock has risen in recent days due to excitement over donanemab, he thinks that euphoria will ultimately fade. “We believe that rising market expectations will ultimately be tempered by caution given history of failed Alzheimer’s disease trials historically,” he wrote.
Still, he said he was more positive on Lilly now for a number of reasons, including rising expectations around the company’s experimental cancer drug, LOXO-305. He also said that shares of Lilly will likely jump dramatically if the Food and Drug Administration approves Biogen’s (BIIB) Alzheimer’s drug. That decision is expected in the coming weeks.
Lilly shares were up 0.4% on Wednesday morning.
Baum’s note is the latest effort by Wall Street analysts in recent days to come to terms with what donanemab means for Lilly’s valuation. The stock trades at a substantial premium to its Big Pharma peers, a differential that has scared off some analysts and investors. On Tuesday, though, Mizuho analyst Vamil Divan upgraded the stock to Buy, from Hold, saying that the Alzhiemer’s trial had made him comfortable with the stock’s high valuation.
“While Lilly’s premium valuation previously kept us on the sidelines, we are now comfortable with the valuation and see room for significantly more upside as donanemab adds another important leg to the story,” Divan wrote.
But for Baum, the donanemab study still wasn’t enough. “We like everything apart from the valuation,” he wrote. He said that the company’s pipeline had been performing well in recent months, with a number of studies coming in positive. “We appreciate the still very significant upside potential in the name… but we prefer to wait for a superior entry point given the current valuation,” he wrote.
Write to Josh Nathan-Kazis at [email protected]
