Eli Lilly stock spiked after Biogen’s Aduhelm approval: here is why

Eli Lilly And Co. (NYSE:LLY) shares are up nearly 12% this week after the Food and Drug Administration (FDA) approved Biogen Inc.’s (NASDAQ:BIIB) Alzheimer’s drug, aducanumab marketed under the brand name Aduhelm. Now, analysts think the FDA’s approval of aducanumab lowers the bar for Alzheimer’s drug approvals. So, Eli Lilly’s donanemab benefits after showing favorable data in Phase 2 clinical trials.

Why Eli Lilly will benefit from aducanumab approval

Biogen stock has skyrocketed since the approval of aducanumab. However, analysts can now draw parallels for LLY’s Alzheimer’s drug after the FDA seemingly lowered the bar in the approval process. The food and drug administration watchdog extended aducanumab’s review process by three months in January and, on Monday, approved it for Alzheimer’s treatment amid a wave of skeptical headlines.

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Morgan Stanley analysts in January said aducanumab’s extended review process would be beneficial to Eli Lilly’s donanemab after it showed favorable data in Phase 2. The Bank of America analysts said that Biogen’s Alzheimer’s drug approval signals regulatory flexibility. It enhances Eli Lilly’s donanemab approval odds. Investors appear to have noticed it. That’s why LLY shares spiked this week.

Analysts expect Eli Lilly’s earnings per share to grow by 36.90% this year and 8.72% next year. It is possible that the current LLY price already includes this year’s projected EPS growth. Therefore, it seems the company’s primary catalyst will be the progress of the donanemab drug clinical trials.

Technical overview

Technically, LLY shares are trading within an ascending channel formation in the daily chart. Eli Lilly stock recently surged to overbought levels of the 14-day RSI. It could trigger a temporary pullback in LLY stock.

Bearish investors can target pullback profits at the support levels at $208.00 and $181.39. Investors optimistic about LLY continuing the current spike can target profits at $240.94 and $260.58.

Bottom line: LLY pullback looks imminent 

Eli Lilly investors reacted positively to the FDA’s decision to approve Biogen’s Alzheimer’s drug. They now expect LLY’s donanemab to face fewer obstacles in the approval process. Although donanemab showed favorable Phase 2 data in clinical trials, there is no certainty that it will gain FDA approval.

And looking at the company’s current earnings expectations, nothing is exciting. This year’s EPS growth already seems to be priced in, and next year’s growth is in the single digits. Therefore, the LLY share price pullback looks imminent.