Eli Lilly shares will rally by almost a fifth over the next year given the pharmaceutical group’s slim reliance on drug price increases and a strong roster of treatments in its pipeline, Goldman Sachs said on Tuesday.
The Indiana-based group is “entering a long-lasting period of accelerating revenue and [earnings per share] growth”, analyst Jami Rubin said as she upgraded her rating to “buy” from “neutral”.
The “diversified late stage pipeline” will also propel “many years of margin expansion”, Ms Rubin said.
At the same time, Lilly is more insulated than its rivals from increased scrutiny over drug prices.
Ms Rubin’s analysis suggests that Lilly has generated about 1 per cent of its cumulative sales over the past five years from price rises above the rate of inflation, compared with 11 per cent at Johnson & Johnson and 17 per cent at Pfizer.
That is an important positive, Ms Rubin said, given drug price reform is at the heart of Democratic presidential candidate Hillary Clinton’s platform, and since the issue has garnered attention in Congress from lawmakers on both sides of the aisle.
“In an environment of increasing political rhetoric and a focus on pricing, we believe pharma companies will be more vulnerable to potential scrutiny around pricing going forward,” Ms Rubin said.
Looking at the pipeline, Ms Rubin reckons several new product launches have the potential to become blockbusters, or drugs that generate $1bn or more in annual sales.
She also said she now pinned 35 per cent odds of success on Solanezumab, a drug Lilly is developing for early treatment of Alzheimer’s disease, up from 25 per cent previously.
“While a lot of excitement around the [Lilly] story has been focused on Solanezumab for mild AD, we view that as a meaningful opportunity but a very high risk asset,” Ms Rubin said.
Lilly’s shares climbed as much as 1.4 per cent in early trading but investor enthusiasm waned by mid-morning, with the shares up 0.5 per cent to $79.94. They had fallen by 5.6 per cent this year as of Monday’s close.
Elsewhere, US energy shares came under pressure as the price of crude oil declined. US crude dropped 3.6 per cent to $44.30 a barrel while Brent was down 3.5 per cent to $45.69.
Volatility in the energy market has heated up ahead of an informal meeting of Opec ministers that is scheduled for Wednesday in Algiers.
There were early hopes that there could be a long-elusive agreement for a production freeze but expectations have dimmed in recent days.
The S&P 500 energy sector skidded 1.3 per cent, by far the worst performance on the benchmark index.
Chesapeake Energy, a natural gas group, faced especially strenuous selling, dropping 8.5 per cent to $6.06. Southwestern Energy, an exploration and production company, dropped 4.6 per cent to $13.08.
In midday trading, the S&P 500 rose 0.2 per cent to 2,150.1, the Dow Jones Industrial Average advanced 0.2 per cent to 18,137.8 and the Nasdaq Composite climbed 0.3 per cent to 5,274.1
Sample the FT’s top stories for a week
You select the topic, we deliver the news.