Previously in this series, we looked at Eli Lilly and Company’s (LLY) decision to terminate the development and research of its CETP (cholesteryl ester transfer protein) inhibitor drug, Evacetrapib, during the drug’s phase 3 clinical trials. We also observed how the market responded to the announcement. Now we’ll attempt to understand Wall Street recommendations for Eli Lilly following this decision, monitoring whether or not there have been any substantial changes in these recommendations on account of the termination of Evacetrapib’s research program.
As of October 13, 2015, approximately half of the analysts following Eli Lilly have rated its stock as a “buy,” while the remaining half have given “hold” recommendations. Among the surveyed analysts, none has given a “sell” recommendation for Eli Lilly.
The above table shows that only one of the ten analysts who updated their recommendations post-termination of the Evacetrapib research program has changed its recommendation for Eli Lilly. Credit Suisse has changed its recommendation from “neutral” to “outperform.” The remaining 16 of the total 26 analysts may still update their recommendations in coming weeks. But the high recommendations that remain indicate that analysts are confident about Eli Lilly’s other research programs, including drugs in development for the treatment of diabetes and Alzheimer’s. It’s expected that revenues from these programs could make up for the revenues lost from the termination of Evacetrapib.
Still, the majority of these analysts have reduced the expected target price for Eli Lilly over the next six months because they foresee that the company will face an additional R&D (research and development) charge of about $90 million in 4Q15.
Analyst recommendations for peers
Among the 24 analysts covering Eli Lilly’s big pharmaceutical peer Pfizer (PFE), 70.8% of them gave “buy” recommendations, whereas 20.8% of them gave “hold” recommendations, and 8.3% issued “sell” recommendations. Roche Holding (RHHBY) has been issued a “buy” recommendation by all the five analysts surveyed. Out of the 23 analysts following Merck & Company (MRK), 52.2% of them issued “buy” recommendations, whereas 47.8% gave “hold” recommendations.
You can reduce your exposure to Eli Lilly while participating in the company’s upside potential by investing in the iShares Core S&P 500 ETF (IVV). Eli Lilly accounts for 0.4% of IVV’s total holdings.