Why Shares of Eli Lilly Soared This Week

Key Points

• The company's multibillion-dollar investments in manufacturing in the U.S. are likely to be warmly welcomed by the Trump administration.

• Eli Lilly's management has already committed to taking action to lower pharmaceutical prices in the U.S.

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Shares in Eli Lilly (NYSE: LLY) had risen 13.2% in the week to Friday morning. The move comes at a time when peer Pfizer announced a deal with the Trump administration that gave that pharmaceutical company three years of grace from tariffs imposed on drugs it manufactures abroad and imports to the U.S.. The deal, which is conditional on Pfizer investing in manufacturing in the U.S., raises hopes that Eli Lilly will also come to a similar agreement with the government.

Investors are optimistic

Eli Lilly is in a good position for a couple of reasons. First, it's already investing heavily in the U.S. with a $5 billion manufacturing facility planned in Virginia, as well as a $6.5 billion manufacturing facility planned in Texas.

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Second, Eli Lilly has already announced an intent to rebalance the costs of its research by increasing the prices paid by governments and healthcare bodies "in other developed markets like Europe in order to make them lower in the U.S."

With negotiations ongoing and the Trump administration unlikely to impose pharmaceutical tariffs on Eli Lilly and others until they are finalized, the odds look favorable for the company to reach some form of agreement with the administration, just as Pfizer did.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.