Eli Lilly: generic pricing is finally rational

Two competitors exited the injectable portfolio and pricing stabilised for the first time in years. A flat-price generics business at this leverage is a different security.

Sofia Lindqvist@sofia_lindqvist

The driver is competitive structure. Generic pricing deflates while there are more than three suppliers and stabilises below that, so an exit is a step change rather than a trend improvement. The competitive exits are confirmed in the exiting companies' own disclosures, and category pricing has been flat for two consecutive quarters for the first time in years. The position: long on Eli Lilly, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. A new entrant re-entering the category would restart deflation, and the pricing argument would go with it.

Discussion · 4

Ines FerreiraAUG 20

I think the setup matters more than the thesis here. The distinction between adequate reserves and the earnings path is well made. What does the bear actually have to be right about?

Marco BianchiAUG 20

Been long since the last one. The lag between intake and revisions is the whole trade. What does the bear actually have to be right about?

Sofia LindqvistAuthorAUG 19

Fair challenge. Invalidation is a close below the lock price on volume, and I should have written that into the card rather than leaving it implicit. (927)

Marco BianchiAUG 20

Not convinced, but well argued. The contract structure matters more than the headline rate. What does the bear actually have to be right about?

LLYLong

Open

Entry$887.03

Target$1,021.33

NowPending

90d horizon-

Price attestation

Locking attested price...

PositionNo position

Compensation

Certified independent

ViewsThese are the creator's own views

This is research, not financial advice. Calls lock at publish and are graded by the market; they can be and often are wrong. Do your own research and consider your own circumstances before acting.