Eli Lilly's (LLY -0.86%) biosimilar drug known as Rezvoglar was given the green light by the U.S. Food and Drug Administration (FDA) to be marketed as an interchangeable to Sanofi's (SNY 6.02%) Lantus long-acting insulin. This follows the FDA's approval of Rezvoglar as a biosimilar last December.
What prompted the FDA to make Rezvoglar the second interchangeable biosimilar to Sanofi's Lantus behind Viatris' (VTRS -0.82%) Semglee? And how much of a boost could this provide to Eli Lilly's sales? Let's dive in to answer these questions.
A cheaper substitute that is just as effective and safe
Diabetes is a chronic medical condition that happens when the pancreas isn't able to produce insulin. This is a hormone that lets glucose or sugar from the food that someone eats move from the bloodstream into the cells to make energy, according to the International Diabetes Foundation.
The symptoms of diabetes can include fatigue, excessive thirst, frequent urination, and blurred vision. If diabetes isn't managed properly with a healthy lifestyle and regular adherence to medications, devastating complications, such as lower limb amputation, kidney failure, and heart disease, can ensue.
Arguably the biggest obstacle to positive health outcomes in diabetes patients relates to the cost aspect of taking medications as prescribed. Approximately 16% to 19% of diabetes patients take medicine less than prescribed due to financial reasons. This is where biosimilar drugs could lead to better results for the healthcare system by preventing catastrophic health complications. That's because biosimilars are typically 20% to 30% cheaper than the branded drug.
To obtain approval from the FDA, biosimilar candidates must prove in clinical trials that they are essentially the same as the branded drug in numerous ways. The drug must be about as safe and effective as the branded product. And Rezvoglar was found to be just as formidable and safe in treating diabetes as Lantus.
This is why the FDA ultimately not only approved the drug as a biosimilar but let it be marketed as an interchangeable biosimilar. This allows the biosimilar to specifically be substituted without any intervention from the healthcare provider who prescribed the reference product.
Image source: Getty Images.
The sales bump will be incremental
Rezvoglar is a safe and effective biosimilar. But what level of sales could this provide for Eli Lilly?
Sanofi's Lantus is on pace to generate nearly $900 million in U.S. revenue in 2022. With just one other biosimilar on the market from Viatris, my estimate is that Rezvoglar can also seize 25% of the sales volume from Lantus. Adjusting for a 25% discount over Lantus, this would equate to approximately $170 million in annual sales for Eli Lilly.
This isn't much of a revenue boost for Eli Lilly stacked up against the $28.6 billion in total revenue that analysts expect for 2022. But alongside nearly six dozen other indications that are in the company's pipeline, small sales bumps like this all add up. This is why analysts are projecting 18.5% annual earnings growth over the next five years from Eli Lilly. That's almost three times the drug manufacturer industry average of 6.9%.
There's always a price to pay for quality
Eli Lilly is a thriving business. Unsurprisingly, quality comes at a high cost. The stock's forward price-to-earnings (P/E) ratio of 44 is more than triple the drug manufacturer industry average of 12.6. But Eli Lilly's red-hot fundamentals arguably justify this premium valuation. That's why I believe it is still a decent buy for the long haul for investors seeking robust capital appreciation.
