Diabetes Challenges at Eli Lilly (LLY) Forces a Second Downgrade at Credit Suisse

Eli Lilly & Co. (NYSE: LLY) shares are down over 1%, early in the session, following a Credit Suisse downgrade to Underperform (from Neutral) and price target reduction to $82 (from $88).

In a note published October 2017, analyst Vamil Divan M.D., previously downgraded LLY to Neutral on "concerns over growing competitive challenges." Today that concern was updated, as Divan sees continued deterioration in his outlook for key diabetes products Trulicity and Humalog, telling clients that he is "increasingly uncomfortable with the outlook for these products and others." Furthermore, the analyst does not believe LLY can achieve management's "mid-term guidance of 5% sales CAGR from 2015-2020."

Divan labels the difficulties facing Trulicity a "Triple Threat," as the Credit Suisse analyst projects sales figures for Trulicity roughly 15% below consensus estimates. Trulicity accounts for nearly 40% of LLY's expected sales growth from 2016-2021, resulting in sales projections $500 million below consensus in 2021 ($3.1 billion vs. consensus at $3.6 million). Divan outlines the "Triple Threat" to Trulicity, saying:

• Market share gains for Novo's Victoza following recent label expansion
• Threat from Novo's onceweekly Ozempic with superior efficacy and generally comparable safety
• Risk from upcoming Phase 3 data for Novo's oral semaglutide.

Key drugs for LLY, such as Humalog and Verzenio, among others also present their own challenges to the company's long-term sales outlook, fueled by competition with Divan pointing to the current 5% YoY decline expectations for Humalog from Wall Street, as "too optimistic."

The new valuation at $82 is driven by lower EPS estimates for 2019 of $4.88 (from $5.16) and 2020 of $5.46 (from $5.71).

The new price target represents 4.1% downside from Friday's closing price.

StreetInsider Premium first published a variation of this article at 4:19AM ET. Try StreetInsider Premium for two weeks free here.

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