Why Did Shares of Eli Lilly Jump Again Today?

Pharmaceutical giant Eli Lilly  (NYSE: LLY  )  has been gaining momentum lately. The excitement surrounding its developmental Alzheimer's drug solanezumab buoyed the stock last week -- even though this therapeutic demonstrated only limited efficacy in clinical trials.

Lilly was back in the news today, but this time it reported unequivocally positive results from a phase 3 clinical trial for its developmental metastatic stomach cancer drug ramucirumab. This study was designed to compare the survival rates of stomach cancer patients treated with ramucirumab with a control group treated with a placebo. Although Lilly is reserving the detailed results for an upcoming scientific conference, the company stated that the trial successfully met its primary endpoint. Both patients and shareholders were happy with this result, and the stock climbed more than 4% by the end of trading today.

Today's surge contributes to Lilly's impressive run in 2012. The stock's year-to-date performance has outshined many of its Big Pharma peers, including stalwarts Pfizer  (NYSE: PFE  ) , Merck  (NYSE: MRK  ) , Bristol-Myers Squibb  (NYSE: BMY  ) , and Sanofi  (NYSE: SNY  ) :

LLY Chart

LLY data by YCharts

What to watch
There are several things Lilly investors need to keep a close eye on. First, Lilly will report its Q3 earnings toward the end of this month, and, in terms of the stock's short term value, it's essential that the company satisfies its revenue targets. We all witnessed Edwards Lifesciences' dramatic drop earlier in October after the company announced that it missed its sales expectations by $17 million to $37 million. This, of course, is an extreme example of how high expectations can damage the short-term value of a stock, but quarterly earnings are extremely important to any stock's share price.

Thinking more long-term, Lilly needs to get more developmental drugs through FDA approval. The company already lost a huge chunk of revenue when its multibillion-dollar schizophrenia medicine Zyprex lost patent protection last year, and patent expirations of more blockbuster drugs, such as Cymbalta and Humalog, are coming up soon. The ramucirumab results released today are very promising, and this drug might find its way to an FDA review board. However, investors should monitor how the drug performs in other clinical trials. For instance, it is being tested in combination with paclitaxel in Lilly's second gastric cancer clinical trial, and it's also being tested as a treatment for other forms of cancer, such as non-small-cell lung cancer.

While you can certainly make huge gains in biotech and pharmaceuticals, the best investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Max Macaluso, Ph.D., has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2058420, ~/Articles/ArticleHandler.aspx, 9/18/2014 9:55:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement