Eli Lilly's Risks Could Be Underappreciated, Goldman Sachs Says In Downgrade

The case for buying shares of Eli Lilly and Co LLY no longer applies, as an analysis of the company's franchise suggests investors are underappreciating the risk surrounding its biggest diabetes franchise, according to Goldman Sachs. 

The Analyst

Goldman Sachs' Jami Rubin downgraded Eli Lilly rating from Buy to Neutral with a price target lowered from $98 to $95.

The Thesis

Despite the downgrade, Eli Lilly still offers investors an attractive long-term story with a diversified portfolio that could offer margin expansion over time, Rubin said in a Tuesday note. (See the analyst's track record here.) 

But here are some risks to the company's diabetes franchise, particularly Trulicity, which happens to be the company's "biggest and fastest" growth driver, she said. 

Trulicity's risk profile has grown recently due to the following factors, Rubin said: 

• Greater share gains from Novo Nordisk A/S (ADR) NVO's competing therapy Victoza after its CV label in June 2017. 
• Heightened competition from injectable semaglutide. 
• Potential negative impact from Novo Nordisk's oral semaglutide product, especially if data that's expected to arrive in 2018 is successful. 

The three headline risks are reason enough for investors to move to the sidelines, especially ahead of baricitinib's data release this year and ongoing questions surrounding the drug's safety, according to Goldman Sachs. 

Price Action

Shares of Eli Lilly were trading lower by 1.51 percent at the time of publication. 

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