Eli Lilly's Challenges Leaves Credit Suisse With A 'Sour Taste'

Analysts at Credit Suisse downgraded Eli Lilly and Co LLY in October and just three months later, the firm believes another downgrade is warranted.

The Analyst

Credit Suisse's Vamil Divan downgraded Eli Lilly's stock from Neutral to Underperform with a price target lowered from $88 to $82.

The Thesis

Divan's October downgrade was based on ongoing concerns from the firm's key diabetes products Trulicity and Humalog. Since that time, the analyst has become "increasingly uncomfortable" with the outlook for these products which calls into question management's guidance of 5 percent sales compounded annual growth through 2020.

Trulicity accounts for around 40 percent of Eli Lilly's sales growth through 2021 based on current expectations, Divan said. A "triple threat" of headwinds is likely flying under the radar, including competition from Novo's Victoza after its recent label expansion, competition from Novo's once-weekly Ozempic which boasts superior efficacy and generally comparable safety, and potential risks from Novo's upcoming phase 3 data for its oral semaglutide.

There are concerns with other products, too. Verzenio could see sales of $1.5 billion by 2023, but could also see a slower ramp versus consensus estimates in initial indications given "indications given physician comfort" with rival therapy Ibrance. The upcoming U.S. Food and Drug Administration's decision Olumiant could be favorable, but the initial uptake may be "more limited" than investors think.

Price Action

Shares of Eli Lilly were trading lower by 1 percent Monday at $84.96.

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