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Gregg Gilbert of Deutsche Bank initiated coverage of Eli Lilly (NYSE: LLY) on Wednesday with a Buy rating and $70 price target.

“Lilly is at a critical stage in its journey, dealing with loss of exclusivity for large products with a keen eye on costs, while investing to deliver new products to the market,” Gilbert wrote in a note to clients on Wednesday. “With a strong diabetes portfolio, under-the-radar oncology franchise opportunity, and recently-bolstered animal health segment, we believe Lilly is poised for return to growth in years ahead.”

Lilly remains a leader in the diabetes market, despite the market becoming increasingly competitive over recent years. The company's diabetes franchise generated $4.2 billion in sales in 2013, representing 18 percent of the company's total revenue. Gilbert is projecting Lilly will increase its diabetes related sales to $7.2 billion in 2018 which will represent 29 percent of total revenue.

According to the analyst, new launches from Jardiance will see peak sales of $500 million in sales by 2018, SGLT2/DPP4 and dulaglutide will see peak sales of $500 million and $850 million, respectively in 2019. Finally, basal insulin peglispro will see peak sales of $600 million by 2020.

Lilly also has compelling oncology assets, according to Gilbert. The analyst sees a “solid opportunity” in Cyramza, which only recently saw regulatory approval for patients suffering from gastric cancer. The analyst estimates Cyramza will see peak sales of roughly $2 billion by 2020.

Lilly plans to seek approval for a second line combination therapy for gastric cancer in addition to other novel product candidates in clinical development, including necitumumab in Phase 3 and abemaciclib which is expected to begin a Phase 3 trial soon.

Beyond diabetes and oncology, Lilly has a late state pipeline that includes other therapeutic categories, including auto-immune, cardiovascular, musculoskeletal and neuro-degenerative diseases.

Finally, Lilly's animal health division provides the company with a form of stability through durable cash flows and a highly leveragable business model with margin expansion opportunities.

Latest Ratings for LLY

Jan 2018Credit SuisseDowngradesNeutralUnderperform
Jan 2018Goldman SachsDowngradesBuyNeutral
Jan 2018ArgusUpgradesHoldBuy

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