Last week, Eli Lilly and Company (LLY) shares tumbled over 10% last week to $64.18 after reporting disappointing results from solanezumab, its’ Alzheimer’s drug that was expected to be the first approved medicine to slow progression of the disease.
On Wednesday, the company announced that solanezumab did not meet the primary endpoint in the EXPEDITION3 clinical trial, a phase 3 study of solanezumab in people with mild dementia due to Alzheimer's disease (AD). Patients treated with solanezumab did not experience a statistically significant slowing in cognitive decline compared to patients treated with placebo (p=.095), as measured by the ADAS-Cog14 (Alzheimer's Disease Assessment Scale-Cognitive subscale). While the study results, including many secondary clinical endpoints, directionally favored solanezumab, the magnitudes of treatment differences were small. There were no new safety signals identified in the study. Lilly will not pursue regulatory submissions for solanezumab for the treatment of mild dementia due to Alzheimer's disease.
"The results of the solanezumab EXPEDITION3 trial were not what we had hoped for and we are disappointed for the millions of people waiting for a potential disease-modifying treatment for Alzheimer's disease," said John C. Lechleiter, Ph.D., chairman, president and chief executive officer, Lilly. "We will evaluate the impact of these results on the development plans for solanezumab and our other Alzheimer's pipeline assets." Lilly will work with investigators to appropriately conclude the open-label extensions for EXPEDITION, EXPEDITION2 and EXPEDITION3.
David A. Ricks, Lilly's incoming chief executive officer and president of Lilly Bio-Medicines stated, “Driven by new product launches, we continue to expect to grow average annual revenue by at least 5 percent between 2015 and 2020. Over that time frame, we also expect to increase our margins and provide annual dividend increases to our shareholders." The EXPEDITION3 study outcome is expected to result in a fourth-quarter charge of approximately $150 million (pre-tax), or approximately $0.09 per share (after-tax).
Price action on the LLY daily chart shows the initial selloff is tentatively finding support from a bullish butterfly pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the X to A leg and just ahead of the 200% Fibonacci expansion level of the B to C move. If this pattern is invalidated, we could see price target the $60.00 level. If the bullish bounce continues, key resistance will come from the 200-day SMA, which currently trades at the $76.73 level.
The Trade: Buy LLY at $68.50, with a stop loss at $66.50 and a take profit at $74.50. The Risk/Reward Ratio is 1:3