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Recent wins worth $4B to Lilly market value

September 15, 2014

A string of positive announcements in the past month have boosted Eli Lilly and Co.’s stock about $4 per share—or more than $4 billion in market value.

And that’s for one simple reason: Lilly is finally putting meat on the bones of its predictions about experimental drugs. That gives investors the certainty they crave that Lilly’s future revenue won’t remain in its 2014 doldrums.

Lilly’s stock price rose from $61.37 on Aug. 12, to $65.27 at Friday’s close, an increase of more than 6 percent.

The biggest news came last week when Lilly revealed that its cancer drug Cryramza, already approved to treat stomach cancer, also prolonged the lives of patients who had first received the iconic cancer drug Avastin.

That led a couple of analysts to boost their peak sales predictions for Cryamza by about $400 million per year.

“This is clearly positive news, and we are increasing our worldwide sales for Cyramza in 2020E from $1.4B to $1.8B,” wrote UBS pharmaceutical analyst Marc Goodman in a Sept. 12 note to investors.

Other positive announcements came with complications that make their commercial impact uncertain—although investors have continued to push Lilly’s stock in a modestly positive direction.

On Sept. 4, Lilly announced a historic feat—that its insulin peglispro was actually better at controlling blood sugar and helping patients lose weight than another insulin. That other insulin was Lantus, the $7.8-billion-per-year blockbuster sold by France-based Sanofi SA.

“This is the first insulin to demonstrate superiority to another insulin, which we see as very good news for Lilly,” wrote UBS’ Goodman in a Sept. 4 research note. Insulin peglispro is a basal, or background, insulin, which diabetics can take once a day to control their blood sugar levels.

The complicating factor is that Lilly’s basal insulin has some safety concerns. Some of its studies of the drug have shown elevated liver enzymes and liver fat, as well as triglycerides and bad cholesterol, compared to Lantus.

That means insulin peglispro might not get the green light from regulators at the U.S. Food and Drug Administration.

“Even though this insulin may be more efficacious than Lantus, we believe the FDA will be very conservative with safety in the insulin space because Lantus is a good drug. It's just not clear to us the risk/reward profile for [insulin peglispro] is enough to get approval,” Goodman wrote. “We think the investment community really needs to see the data for this drug before getting more comfortable.”

On Sept. 10, Lilly announced that another experimental diabetes product, its insulin glargine, was approved for the market by European regulators. Lilly got a similar approval last month from U.S. regulators.

The trouble is, Lilly might have to wait until 2016 before it can capitalize on those approvals. Its insulin glargine is essentially the same protein as Lantus, so Sanofi has sued in both U.S. and European courts to block Lilly from bringing its drug to market before the patents on Lantus expire in 2016.

Lilly’s revenue is on pace to fall below $20 billion this year, after it saw the U.S. patents on its best-selling drug, the antidepressant Cymablta, expire in December. The European patents on Cymbalta expired last month.

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