Eli Lilly reported mixed second-quarter results that were slightly under consensus and reiterated its full-year guidance. While the overall numbers were unremarkable in some analysts’ views, the SunTrust team is still very focused on the company’s outstanding late-stage product pipeline, which they view as very undervalued. They noted in the report:
Lilly is presenting on multiple other clinical trials, which read out in the 2017-2018 time-frame. Safety data from Phase 2LY3023414/Portrazza after first-line chemotherapy in metastatic squamous non-small cell lung cancer (NSCLC). Preliminary safety and efficacy data from Phase 2 study of cell cycle checkpoint kinases 1 and 2 (CHK1/2) inhibitor (LY2606368; prexasertib) in sporadic triple negative breast cancer (TNBC). Phase 3 ramucirumab data on prognosis, efficacy and safety by liver etiology in treatment of patients with second-line treatment of hepatocellular carcinoma.
Eli Lilly shareholders receive a 2.56% dividend. SunTrust has a $107 price target, and the consensus target is $95.67. Shares closed Thursday at $79.74.
This leading health care stock is on the focus lists of many of the firms we cover. Merck & Co. Inc. (NYSE: MRK) offers therapeutic and preventive agents to treat cardiovascular issues, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal infections, intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, male pattern hair loss and fertility diseases.
The company also provides neuromuscular blocking agents for use in surgery, anti-bacterial products for skin and skin structure infections, cholesterol modifying medicines, non-sedating antihistamine and vaginal contraceptive products. Other products to prevent chemotherapy-induced and post-operative nausea and vomiting, treat brain tumors, treat melanoma and metastatic non-small-cell lung cancer and prevent diseases caused by human papillomavirus, as well as vaccines for measles, mumps, rubella, varicella, chickenpox, shingles, rotavirus gastroenteritis and pneumococcal diseases.
Further, it provides antibiotic and anti-inflammatory drugs to treat infectious and respiratory diseases, fertility disorders, and pneumonia in cattle, horses and swine; vaccines for poultry; parasiticide for sea lice in salmon; and antibiotics for the treatment of C. difficile, and vaccines against bacterial and viral disease in fish.
The SunTrust report noted:
Merck has a strong balance sheet and cash-generating ability along with a pipeline and in-line product portfolio to offset weakness in any single product. However, risks to our rating and target price include: 1) greater-than-expected decline in Vytorin/Zetia volume from Lipitor generics coupled with potentially negative results from the IMPROVE-IT outcomes study in late 2014; 2) deceleration in the Januvia franchise from competitors including for oral DPP-IV’s and oral SGLT-2’s; Isentress (integase inhibitor) franchise pressures in the HIV market; 3) potentially negative Phase III trial results /restricted labels for key pipeline products, Belsomra (insomnia), odanacatib (osteoporosis), Keytruda (immunoncology) and anacetrapib (atherosclerosis); and 4) global pricing risk. On the other hand, stronger-than-expected uptake for vaccines, including Gardasil (HPV vaccine)/Zostavax (shingles), and a robust uptake of new products suvorexant/odanacatib could cause our target price to be exceeded.
Merck shareholders receive a 2.96% dividend. The $73 SunTrust price target is well above the consensus target of $66.11 and the most recent close at $61.91.
Any of these three top companies makes an outstanding addition to more conservative portfolios. While big pharmaceuticals don’t grow earnings like the big biotech leaders, they are also far less volatile and act better if the market gets dicey.