There are no gifts in these unforgiving markets, where bear markets like those in industrials morph into bull markets, and bull markets like high-growth biotechs overnight get mauled by the bear.
But periodically you will get a stock that gives you a chance. It plummets and it allows you to get in it at a discount when you least expect it, and today's decline in Eli Lilly (LLY) is one of those declines.
Here's the background. Just as we have been in a stampede of a bull market in the oils and industrials, we have been in an unmitigated selloff in so many of the darlings, from Valeant (VRX) to ServiceNow (NOW) and Workday (WDAY), to anything biotech. The value stocks within these groups have tried to make a comeback, but only one of the cohort has had any traction: Eli Lilly.
Today, that traction ended when Lilly halted a phase three trial for a new class of cardiovascular drug that would compete with Regeneron's (REGN) and Amgen's (AMGN) anti-cholesterol drugs as a way to cut down on heart disease. Lilly shareholders are frantically dumping the stock, at one point selling the stock down an outrageous and uninformed 10 points, showing you just how fearful people are of this entire segment.
But Eli Lilly was never up in the $80s because of this drug. It had been by far the best-acting old pharma stock because of two new drugs, an anti-diabetes formulation called Jardiance, and an anti-Alzheimer's drug called Solanezumab.
Earlier last month, Eli Lilly announced a novel treatment for Type 2 diabetes involving an already-approved diabetes drug, Jardiance, which showed a significant reduction in non-fatal heart attacks and non-fatal strokes, not to mention a 38% reduction in cardiovascular events that are actually fatal.
These results came out of nowhere and are a very big deal, because Jardiance is the only diabetes drug with these properties. I've seen analysts suggesting that this drug could generate $6 billion in sales. This drug's remarkable success comes on the heels of an Alzheimer's drug that has shown a stunning increase in cognition and function for 132 weeks, a significant gain over any other drugs in the market. Anything that can slow some of Alzheimer's onset could be the biggest drug ever.
Now, into the mix of these two potential blockbusters comes the halting of an icing-on-the-cake trial for an anti-cardiovascular breakdown drug. I believe this drug isn't even in the numbers. But at the same time, I have been waiting for this stock to come down even a smidge after the announcement of these back-to-back blockbusters.
Well, here's the chance you've been waiting for. Now the markets have turned decidedly against high growth, with the drug stocks in particular coming under fire because of worries that their pricing structure could come under attack by both parties during this election year. I think Lilly, with these two drugs, would have the most opportunity to maintain pricing stability.
My conclusion? While the rest of the drug and biotech cohort remain in definitive bear market mode, that won't always be the case. The stock that will turn first? Eli Lilly. If you can get it below $80, it's worth the chance.