Analyst downgrades Lilly shares to 'underperform'

Analyst downgrades shares of drugmaker Eli Lilly to 'underperform' from 'neutral'

Associated Press

Eli Lilly and Co. shares now trade at a premium compared to other pharmaceutical stocks despite modest growth prospects, according to a Cowen and Co. analyst who lowered his rating on the drug developer.

THE OPINION: Analyst Steve Scala said in a Friday research note that he sees a greater degree of risk in Lilly's ability to develop new treatments and in a patent dispute over its cancer treatment Alimta than what appears to be factored into the share price.

Shares of the Indianapolis company have climbed more than 21 percent so far this year, with much of the gain coming since late August, when the drug developer released preliminary study results that showed that its potential Alzheimer's treatment, solanezumab, may modestly slow mental decline in patients with mild cases of the disease

Scala said in his note that solanezumab accounts for much of the stock's recent run, but he thinks the drug will likely fail. He doesn't believe existing data is sufficient for regulatory approval, and he thinks Lilly will pass on conducting another large, expensive study for more data.

Scala lowered his rating on Lilly shares to "underperform" from "neutral." The new rating means he expects the stock to perform worse than the Standard & Poor's 500 index.

THE STOCK: Down 11 cents to $50.49, while the S&P 500 also fell less than 1 percent in Friday afternoon trading.

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