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Eli Lilly and Co (NYSE:LLY) Halts Development of Cholesterol Drug: Analysts Maintain Ratings

By Christine Brown 

Earlier this week, pharma company Eli Lilly and Co (NYSE:LLY) announced the halting of the late-stage trial of evacetrapib, a drug meant to treat cholesterol, because of the drug’s ineffectiveness. The company’s stock dropped nearly 8% following this announcement. BMO Capital and BofA/Merrill Lynch weighed in.

Following Eli Lilly’s latest announcement, Alex Arfaei from BMO Capital maintained a Market Perform rating for the stock with a price target of $90.

Referring to evacetrapib, Arfaei said, “We are removing it from our model, and we are also publishing our updated Jardiance forecast following the EMPA-REG OUTCOME study.” Jardiance is Eli Lilly’s diabetes drug, which is co-marketed with Boehringer Ingelheim.

While referring to the news as “negative,” Arfaei acknowledged low expectations from the drug. Arfaei said, “Evacetrapib (Eva) was a high risk/high reward program for Lilly, and given limited prior data, it was very difficult to handicap its probability of success. We had low expectations for Eva, and as a result did not include it in our revenue forecast; we only included a risk-adjusted valuation of $3.2B or $3/share in our DCF model for Eva, and today we are removing that. The failure increases Lilly’s dependence on the rest of the pipeline, including the CDK 4/6 inhibitor Abemaciclib and Sola in Alzheimer’s disease.”

Alex Arfaei has rated the pharmaceutical company five times since 2012. Since he has only given Neutral and Sell ratings on the company, he has a 0% success rate recommending the stock with an average log of -15.6% when measured over a one-year horizon and no benchmark.

Separately, Colin Bristow from BofA/Merrill Lynch maintained a Buy rating on Eli Lilly’s stock; however, he’s lowered his price target to $104 from the earlier target of $108.

Bristow expected the stock to “react negatively to news Lilly halted development of evacetrapib, the initial reaction appears overdone and beyond the consensus NPV contribution of evacetrapib.” Referring to consensus estimates, he clarified, “Consensus was for peak sales of around $800 million.”

Colin Bristow has rated Eli Lilly’s stock six times since 2014 with a 50% success rate and a +1.6% average return per LLY rating.

According to TipRanks, out of 10 analysts who have recently rated Eli Lilly’s stock, seven have recommended to Buy the stock, while three have given it a Hold rating. None of the analysts have recommended to Sell the stock. The average 12-month price target for Eli Lilly’s stock is $99, an upside of around 25% over present levels.