Eli Lilly to Buy Prevail Therapeutics in $1.04 Billion Deal, Shares Soar

Indianapolis-based pharmaceutical company Eli Lilly announced to acquire a biotechnology company Prevail Therapeutics in a deal worth $1.04 billion to expand its business in gene therapy, sending its shares up over 3% on Tuesday.

According to the deal, Lilly will commence a tender offer to acquire all outstanding shares of Prevail Therapeutics Inc. for a purchase price of $22.50 per share in cash. The deal is expected to close in the first quarter of 2021.

Following this announcement, Prevail shares surged about 90% to as high as $23.08.

Moreover, Eli Lilly forecasts next year’s revenue between $26.5-$28 billion and sales of nearly $1-$2 billion from its COVID-19 treatments. That would be largely driven by strong financial and operational performance in 2021, highlighted by volume-based revenue growth, operating margin expansion, pipeline advancements and solid cash flow.

Earnings per share (EPS) for 2021 are expected to be between $7.25 to $7.90 on a reported basis and $7.75 to $8.40 on a non-GAAP basis.

“Lilly issued 2021 revenue guidance 3% above and EPS in-line with consensus due to higher-than-expected R&D spending. Excluding COVID-19 therapy revenues, which are short duration, core revenue guidance is 3% above consensus,” said David Risinger, equity analyst at Morgan Stanley.

At the time of writing, Eli Lilly’s shares traded 3.01% higher at $162.67 on Tuesday; the stock is up over 20% so far this year.

Eli Lilly Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $172.80 with a high forecast of $200.00 and a low forecast of $144.00. The average price target represents a 7.08% increase from the last price of $161.38. From those 10 analysts, seven rated “Buy”, three rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $170 with a high of $207 under a bull-case scenario and $121 under the worst-case scenario. The firm currently has an “Overweight” rating on the pharmaceutical’s stock.

Several other analysts have also upgraded their stock outlook. Guggenheim raised the stock price forecast to $183 from $178; Berenberg upped the target price to $150 from $144; Mizuho lowered the price objective to $156 from $164. Truist began coverage on Eli Lilly and set a “buy” rating and a $180 price objective. At last, JP Morgan boosted their price objective and to $200 from $190 and gave the stock an “overweight” rating.

Analyst Comments

“We are Overweight Eli Lilly shares as we believe consensus underappreciates Lilly’s long-term revenue and EPS growth potential. We project 2020e-2025e CAGR revenue +8% and EPS +14%. We see upside potential for pipeline candidate tirzepatide’s “trifecta” opportunity in diabetes, obesity, and cardiovascular health,” Morgan Stanley’s said Risinger added.

“Pipeline newsflow on diabetes and Alzheimer’s candidates could drive stock upside/downside, but we view Eli Lilly’s Alzheimer’s pipeline as an inexpensive call option. Lilly could pursue additional tuck-in transactions to enhance long-term growth prospects.”

Upside and Downside Risks

Risks to Upside: Upside risks are financial results above expectations, positive pipeline news (e.g. tirzepatide for diabetes and Alzheimer’s-related newsflow), competing products disappoint, and compelling external action- highlighted by Morgan Stanley.

Risks to Downside: Financials miss, pipeline disappoints (e.g. tirzepatide), negative Alzheimer’s newsflow, competing drugs surprise on the upside, and Democratic election sweep causes drug pricing concerns.