UBS is moving off the sidelines and saying now is the time to snap up Eli Lilly citing a key weight loss drug. The firm upgraded shares of the pharmaceutical company to buy from hold and raised its price target to $363 from $335. That implies the stock could surge more than 22%. The rating change comes after mounjaro, or tirzepatide, a key weight loss drug, showed promise in a random study called Surmount-1 and was approved for use in patients with type 2 diabetes. “With these events in the rear-view mirror, we now view LLY as being the most attractive name in our large cap coverage, with the greatest potential upside to numbers,” wrote analyst Colin Bristow in a Thursday note. Weight loss drug could be biggest ever The weight loss drug could be the “biggest drug ever” with estimated peak annual sales of $25 billion, according to the firm’s estimate. That would top the peak annual sales of $20.7 billion by AbbVie’s Humira. In the Surmount-1 trial, the drug helped more than 20% lose weight and showed other positive factors, such as 95% of pre-diabetic patents normalizing blood sugars. Several drug companies have weight loss drugs in development , making it a possible big driver of the stocks in coming years. In addition, Eli Lilly’s Alzheimer’s drug, donanemab, “is the highest potential late-stage Alzheimer’s asset, in our view, with LLY also being the best risk-reward play into BIIB’s upcoming lecanemab readout,” said Bristow. Poised to surge While the company’s valuation might seem expensive now, it is poised for double digit growth in both the top and bottom lines over the next five years from a diversified business and could see more than $20 in earnings per share upside by 2026, UBS said. “We believe LLY currently deserves a significant premium,” said Bristow. In the near-term, there is downside risk if the company’s weight loss drug is not able to file for use in obesity, the note said. But the filing and approval is a “when” not an “if,” according to Bristow.
© heardonwallstreet.com