Why Eli Lilly Could Be a Lottery Stock Pick

Experimental Alzheimer's drug is a swing for the fences

   

Most websites say your odds of winning the lottery are about 1 in 180 million.

One analyst thinks a better bet might be shares of Eli Lilly (NYSE:LLY). Although the return on your investment isn’t going to be as high as it would be if you hit the Powerball, Lilly stock could double if the company’s experimental Alzheimer’s drug is effective, Tim Anderson, an analyst with Sanford C. Bernstein, said in a note, according to Bloomberg.

“Eli Lilly and several of its competitors are willing to spend hundreds of millions of dollars on what is essentially a massive lottery ticket,” Anderson told Bloomberg. “If their drugs are successful in delaying the progression of Alzheimer’s disease, they could end up making Lipitor look like a mid-sized product,” he said, adding that the Lilly Alzheimer’s treatment solanezumab could generate revenue of $9 billion by 2020.

A word of caution here. Even Anderson admits that the chance of solanezumab reaching its potential is only about 10% to 20%. Even those odds might be optimistic. There currently is no cure for Alzheimer’s, and scientists aren’t even certain what causes the disease that affects more than 5 million Americans.

Solanezumab is an antibody designed to clear protein fragments called beta amyloid that clutter the brains of patients with Alzheimer’s disease, Bloomberg reported. Similar drugs are being tested by Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and Elan (NYSE:ELN). Phase III study data on solanezumab is set to be released in the third quarter of 2012.

Lilly already has been disappointed with an Alzheimer’s drug. In late July, the company dumped the once-promising treatment semagacestat when studies showed the drug failed to reverse the decline of patients’ cognitive symptoms and seemed to increase the incidence of skin cancer.

On Wednesday, Lilly shares were up more than 5% for the week before backing off to $38 a share Thursday, about a 3% gain. At its current price, Seeking Alpha thinks Lilly is a “good, safe dividend play” for a number of reasons.

In addition to the prospects for solanezumab, the publication favors a number of things, including a solid balance sheet and dividend yield, low beta, good value from a cash flow perspective, minimal insider selling and a 40% discount to LLY’s five-year average.

Like its Big Pharma brethren Merck (NYSE:MRK) and Pfizer, Lilly has the daunting task of replacing some blockbusters that soon will lose patent protection. Investors are somewhat anxious about Lilly’s prospects once generic versions of Zyprexa, Cymbalta and Humalog hit the market.

One drug that might help fill the gap is the cholesterol fighter evacetrapib, which has shown good results in clinical trials. Although the competition is steep, the drug could give Lilly a nice boost considering the size of the market.

As of this writing, Barry Cohen was long LLY, PFE, MRK and JNJ.


Article printed from InvestorPlace Media, http://investorplace.com/2011/12/eli-lilly-lly-stock-solanezumab-alzheimers-drug/.

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