Can Eli Lilly Stock Rebound After A 10% Drop Over Alzheimer’s Drug?

by Trefis Team
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The stock price of Eli Lilly & Company (NYSE: LLY) has seen a 10% drop over the last five trading days, after the company announced mixed results from clinical trials of Donanemab, a drug for the treatment of Alzheimer’s disease. While the drug met the primary endpoint, it failed to meet a more important secondary endpoint, with investors weighing the possibility of the drug failing in further clinical studies. Note that there is no approved treatment for Alzheimer’s disease, and many companies, including Eli Lilly, have tried and failed. This is important because Donanemab’s peak sales were touted to be as high as $10 billion. Now, the company will move to a second study for Donanemab, and the results will be expected in early 2023.

Looking at the recent rally, the 10% drop for LLY stock over the last five days compares with a -0.1% drop seen in the broader S&P 500 index. Now, is LLY stock poised to drop further? It doesn’t look that way. Based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong chance of a rise in LLY stock over the next month (twenty-one trading days).

Out of ten instances in the last ten years that Eli Lilly and Company (LLY) stock saw a five-day decline of 10% or more, nine of them resulted in LLY stock rising over the subsequent one month period (twenty-one trading days).

As a similar change has occurred very few times historically, we can’t directly use historical trends to draw a conclusion. However, keeping in mind the fact that the stock has seen an unusually sharp drop in price over the last five days, we believe that the trend will likely reverse over the coming month. See our analysis on Eli Lilly & Company Stock Chances of Rise for more details.

Five Days: LLY -10%, vs. S&P500 -0.1%; Underperformed market

(Extremely rare event)

  • Eli Lilly and Company stock declined 10% over a five-day trading period ending 3/18/2021, compared to a broader market (S&P500) decline of 0.1%
  • A change of -10% or more over five trading days is an extremely rare event, which has occurred 10 times out of 2516 in the last ten years

Ten Days: LLY -8.3%, vs. S&P500 4.4%; Underperformed market

(1% likelihood event)

  • Eli Lilly and Company stock declined 8.3% over the last ten trading days (two weeks), compared to a broader market (S&P500) rise of 4.4%
  • A change of -8.3% or more over ten trading days is a 1% likelihood event, which has occurred 36 times out of 2500 in the last ten years

Twenty-One Days: LLY -11%, vs. S&P500 0.05%; Underperformed market

(24% likelihood event)

  • Eli Lilly and Company stock declined 11% the last twenty-one trading days (one month), compared to a broader market (S&P500) rise of 0.05%
  • A change of -11% or more over twenty-one trading days is a 24% likelihood event, which has occurred 598 times out of 2458 in the last ten years

While LLY stock may rebound, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Abbott vs. Vertex.

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