Can The Rally Continue For Eli Lilly Stock After A 10% Rise On Increased Hopes For Its Alzheimer’s Drug

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[Updated: 6/9/2021] LLY Stock Rises Over Alzheimer’s Drug

The stock price of Eli Lilly & Company (NYSE: LLY) has seen a large 10% rise in a single trading session yesterday. This move came after Biogen’s Aduhelm was approved by the U.S. FDA for the treatment of Alzheimer’s disease. This news had a positive impact on Eli Lilly, given that it is also developing a drug for Alzheimer’s and the approval of Aduhelm increases the likelihood of approval for Eli Lilly’s drug – Donanemab.

There is no other approved therapy for the treatment of Alzheimer’s disease, and the market size is huge with over 35 million patients worldwide. Eli Lilly wasn’t seeking an accelerated approval for Donanemab, but now that Biogen has secured the approval, there is a chance that Eli Lilly may explore the accelerated approval path. This is important for Eli Lilly given that Donanemab peak sales are touted to be as high as $10 billion.

LLY stock is up 92% from levels of $116 seen toward the end of 2018, primarily led by favorable changes in its earnings. Our dashboard, ’Factors That Drove 92% Growth In LLY Stock’, provides more details.

Some of this rise over the last two years or so is justified by the roughly 14% growth seen in Eli Lilly’s revenues from 2018 to 2020, led by increased sales for Trulicty, Verzenio, Olumiant, and Bamlanivimab. The company also saw its net margins expand over 1000 bps to 25.2% in 2020. This clubbed with a 12% drop in total shares outstanding due to share repurchases has meant that EPS more than doubled to $6.82 in 2020, compared to $3.14 in 2018.

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Despite robust fundamentals, the company’s P/E multiple declined to 25x in 2020, compared to 37x in 2018. While the P/E multiple has now increased to 33x, it has more room for growth, compared to its historical levels, boding well for LLY stock. Overall, given the recent momentum in LLY stock, Biogen’s landmark approval for Alzheimer’s disease, and Covid-19 vaccination trends suggesting a quicker rebound in economic growth, point towards a continued rally in Eli Lilly stock, in our view.

[Updated: 3/19/2021] Eli Lilly Stock Decline

The stock price of Eli Lilly & Company LLY (NYSE: LLY) has seen a 10% drop over the last five trading days, after the company announced mixed results from clinical trials of Donanemab, a drug for the treatment of Alzheimer’s disease. While the drug met the primary endpoint, it failed to meet a more important secondary endpoint, with investors weighing the possibility of the drug failing in further clinical studies. Note that there is no approved treatment for Alzheimer’s disease, and many companies, including Eli Lilly, have tried and failed. This is important because Donanemab’s peak sales were touted to be as high as $10 billion. Now, the company will move to a second study for Donanemab, and the results will be expected in early 2023.

Looking at the recent rally, the 10% drop for LLY stock over the last five days compares with a -0.1% drop seen in the broader S&P 500 index. Now, is LLY stock poised to drop further? It doesn’t look that way. Based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong chance of a rise in LLY stock over the next month (twenty-one trading days).

Out of ten instances in the last ten years that Eli Lilly and Company stock saw a five-day decline of 10% or more, nine of them resulted in LLY stock rising over the subsequent one month period (twenty-one trading days).

As a similar change has occurred very few times historically, we can’t directly use historical trends to draw a conclusion. However, keeping in mind the fact that the stock has seen an unusually sharp drop in price over the last five days, we believe that the trend will likely reverse over the coming month. See our analysis on Eli Lilly & Company Stock Chances of Rise for more details.

Five Days: LLY -10%, vs. S&P500 -0.1%; Underperformed market

(Extremely rare event)

  • Eli Lilly and Company stock declined 10% over a five-day trading period ending 3/18/2021, compared to a broader market (S&P500) decline of 0.1%
  • A change of -10% or more over five trading days is an extremely rare event, which has occurred 10 times out of 2516 in the last ten years

Ten Days: LLY -8.3%, vs. S&P500 4.4%; Underperformed market

(1% likelihood event)

  • Eli Lilly and Company stock declined 8.3% over the last ten trading days (two weeks), compared to a broader market (S&P500) rise of 4.4%
  • A change of -8.3% or more over ten trading days is a 1% likelihood event, which has occurred 36 times out of 2500 in the last ten years

Twenty-One Days: LLY -11%, vs. S&P500 0.05%; Underperformed market

(24% likelihood event)

  • Eli Lilly and Company stock declined 11% the last twenty-one trading days (one month), compared to a broader market (S&P500) rise of 0.05%
  • A change of -11% or more over twenty-one trading days is a 24% likelihood event, which has occurred 598 times out of 2458 in the last ten years

While LLY stock may rebound, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Abbott vs. Vertex.See all Trefis Featured Analyses and Download Trefis Data here