William Blair Heads to Sidelines on CoLucid Pharmaceuticals Inc (CLCD)

William Blair analyst Tim Lugo is downgrading CoLucid (NASDAQ:CLCD) following the announcement of the firm’s pending acquisition by Eli Lilly and Co (NYSE:LLY), despite the subsequent 32% rise in shares. The deal will close at approximately $960 million, or $46.50 per share.

Though investors were excited by the news, Lugo is not jumping on the bandwagon just yet.

The forthcoming acquisition will not be the first alliance between the pharmaceutical companies, considering there was an initial 2005 licensing agreement between CoLucid and Eli Lilly for lasmiditan, a migraine drug. CLCD and LLY’s last deal included a $1 million upfront payment, a milestone payment upon approval of $32 million, an undisclosed equity stake, and royalties ranging from 8% to 11% of sales. Moreover, the analyst points out that will also not be the first time Eli Lilly has reacquired a previously licensed migraine drug, highlighting a CGRP antibody purchased from Arteaus Therapeutics in 2014.

Lugo believes, “Given this prior agreement in place between CoLucid and Eli Lilly, we view the purchase price […] as in line with our net present value estimate for lasmiditan of $988 million and view a potential counteroffer as unlikely.”

As such, on the heels of the news, the analyst downgrades to a Market Perform rating on CLCD without listing a price target.

Additionally, the analyst met recently with CLCD management, further boosting his confidence in the rest of the company’s pipeline. Among the migraine drug contenders, top-line results from a Phase III study of ASMURAI and the potential submissions of both ASMURAI and GLDIATOR NDA are anticipated by 2018.

Though the analyst has stepped to the sidelines on CLCD, he maintains optimism, concluding, “The GLADIATOR study will better define the safety profile and will provide robust multidose data. […] we believe the dropout rate in GLADIATOR is below the company’s original expectations, which suggest tolerability is trending well. Management views the total market as exceeding $2 billion.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Tim Lugo in ranked #575 out of #4,355 analysts. Lugo has a success rate of 36% and an average annual return of 13.1%. When recommending CLDC, Lugo gains an average profit of 323.7% on the stock.

TipRanks analytics exhibit CLCD as a Buy. Among 4 analyst polled by TipRanks in the last 3 months, 2 are bullish on the stock and 2 are sidelined. With an upside of 3%, the consensus price target stands at $47.83.

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