Profit profile helps Lilly shares rebound from Alzheimer's setback

[April 25, 2017] By Lewis Krauskopf

NEW YORK (Reuters) - Shares of Eli Lilly & Co have staged a dramatic rebound following massive disappointment for its experimental Alzheimer's medicine late last year, outperforming rivals as investors warm to the drugmaker's profit outlook.

Investors are counting on Lilly's stable of new products for conditions such as diabetes and psoriasis to propel its earnings above those of industry peers over the next several years.

Lilly shares had tumbled 10.5 percent on Nov 23 when the drugmaker released highly anticipated data for the Alzheimer's medicine, solanezumab.

Since then, Lilly's shares have soared 22 percent, despite a recent regulatory setback for a rheumatoid arthritis drug. That's triple the 7.3 percent advance in the NYSE Arca Pharmaceutical index over the same period.

Knowing a volatile stock event was coming, many investors were "waiting on the sidelines" until the impact from the release of data on the Alzheimer's drug had passed, said David Heupel, healthcare analyst with Thrivent Investment Management.

"You have a company that, outside of Alzheimer's, has a really nice group of products either early in their launch or in later-stage development," Heupel said.

The rally in Lilly shares continued on Monday, rising 1.5 percent after the company announced positive data for its experimental breast cancer treatment.

Even without solanezumab, Lilly has expressed confidence it would increase revenue by 5 percent a year on average between 2015 and 2020, armed with products such as Jardiance and Trulicity for diabetes and Taltz for psoriasis.

Morningstar analyst Damien Conover projects Lilly will boost its earnings by 12 percent a year on average through 2021, double the average projected growth of a group of 11 drugmakers.

At more than 19 times earnings estimates over the next 12 months, Lilly shares are more expensive than those of drugmakers such as Merck and Bristol-Myers and trade at a 25 percent premium to S&P 500 pharmaceutical companies.

That valuation may worry some investors, but the premium is only slightly more than the 22 percent clip Lilly shares have traded at above the group over the past five years on average.

The company, which has a market value of $92 billion, is expected to report 16 percent growth in first-quarter profit on revenue of $5.22 billion when its results are released on Tuesday.

Also set to be in focus is the outlook for Lilly's rheumatoid arthritis drug baricitinib.

Lilly and partner Incyte disclosed on April 14 that the U.S. Food and Drug Administration declined to approve baricitinib, indicating more data was needed to determine appropriate dosing and to further characterize safety concerns.

The decision about the drug, which is approved in Europe, left analysts with questions they hope the company can clear up.

(Editing by Bernadette Baum)

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