Eli Lilly (LLY -0.64%) was already having a great year in the stock market, but on Sept. 28, the company's shares jumped by about 7%. The move happened after biotech giant Biogen and its partner Esai reported positive top-line results from a phase 3 clinical trial for an Alzheimer's disease (AD) therapy candidate, lecanemab.
Eli Lilly is working on its own AD treatment, donanemab, and the market counted Biogen's win as Eli Lilly's too. Still, a 7% jump for a company the size of Eli Lilly is huge. Was it justified? Here's what could be in the cards for Eli Lilly's AD program following these recent developments.
Biogen's big surprise
The search for an effective therapy that slows the cognitive decline associated with AD has been marked by multiple failures. Biogen is no stranger to this area. Last year, it earned approval for Aduhelm, a controversial AD treatment that arguably had not conclusively demonstrated its efficacy in clinical trials. But based on recent events, lecanemab could be different.
Just like Aduhelm, lecanemab works by targeting the buildup of beta-amyloid plaque in the brain, a protein thought by some researchers to be linked with the cognitive decline associated with AD. Top-line data from Biogen and Esai's phase 3 study showed that lecanemab met its primary endpoint by reducing clinical decline on the global cognitive and functional scale by 27%, 18 months after the start of treatment.
Lecanemab hit all its secondary endpoints, too. Based on this result, Biogen and Esai look likely to earn approval for their AD candidate, although we will have to wait for the study's full results. But what about Eli Lilly?
Can Eli Lilly ride this wave?
Eli Lilly's donanemab also targets the buildup of beta-amyloid plaque. With Biogen's success, the market seems to think donanemab has a higher chance of demonstrating clinically meaningful results and getting approved. Perhaps that's because there is still some debate regarding the beta-amyloid plaque hypothesis. The apparent success of lecanemab adds a piece of evidence in one direction.
Since donanemab functions the same way, maybe these recent events do improve the medicine's chances. That said, investing in Eli Lilly right now because of donanemab's prospects seems a bit hasty. First, note that Eli Lilly initiated a rolling submission to the U.S. Food and Drug Administration (FDA) for accelerated approval for donanemab in treating early AD in late 2021.
Under the accelerated approval program, donanemab could be granted the green light based on a surrogate endpoint (a clinical trial result that is thought to correlate with clinically meaningful benefits but isn't a direct measure of such benefits).
But donanemab's prospects would be limited if approved under the accelerated approval route. Earlier this year, The U.S. Centers for Medicare and Medicaid Services (CMS) said it would only cover therapies granted accelerated approval for patients who are enrolled in CMS-approved clinical trials, which isn't a lot of patients.
Biogen and Esai's phase 3 study for lecanemab features only 1,795 participants. The CMS' coverage decision is one of the reasons Aduhelm isn't generating much revenue, and the same thing would happen to donanemab if approved the same way. Eli Lilly is running a phase 3 study for donanemab, and it will use the results from this trial to apply for full approval.
Even if lecanemab seems to have a head start right now, donanemab could still be successful, although it would almost certainly earn approval after lecanemab. There are about six million patients with AD in the U.S. and many more abroad. Ultimately, what matters most is which therapy is the most effective. To know which one that is, we need the full results from late-stage studies for both -- and we don't have that for either.
And while we do have top-line data for one of them, it isn't Eli Lilly's candidate. Nobody knows whether donanemab will prove effective in clinical trials yet and whether it will earn approval. At this point, it's difficult even to speculate, at least in my view. That's why Eli Lilly's 7% gains on the heels of Biogen's win made little sense.
Other reasons to invest
Thankfully, there are much better reasons to invest in Eli Lilly. The company still has a solid lineup of drugs that continues to grow revenue. Further, it has a pipeline of promising programs that recently produced potential blockbusters, including type 2 diabetes medicine Mounjaro.
I share the opinion of UBS analysts who said that Eli Lilly's approval of donanemab would be "icing on the cake," considering its prospects with Mounjaro, which boasts massive potential. This therapy and others will allow Eli Lilly to deliver solid financial results consistently. That's a much better reason to buy the company's shares.
