Investors love Eli Lilly (LLY 0.50%) right now. The biotech has crushed the market over the trailing-12-month period, even defying last year's bear market and ignoring economic downturns.
You might think everything is going well with Eli Lilly, but like every corporation, the drugmaker has its issues. Notably, Lilly has faced some regulatory obstacles this year. Let's review some of them and figure out what they mean for the stock.
Has Eli Lilly failed to meet its goal?
Last December, Lilly announced that it planned to launch four new drugs in the U.S. this year: Alzheimer's treatment donanemab, ulcerative colitis therapy mirikizumab, eczema medicine lebrikizumab, and pirtobrutinib for mantle cell lymphoma.
Of these four products, only one has made it to the U.S. market so far: pirtobrutinib, which now sells under the brand name Jaypirca.
And while the year isn't over yet, the other three might not be commercialized before 2023 draws to a close. All three have received complete letter responses (CLR) from the U.S. Food and Drug Administration (FDA). A CLR is a euphemism for a rejection. Getting three of them in about nine months would sink the shares of many biotechs, but Lilly has managed. And it's also necessary to look deeper into those CLRs.
It's not the end of the world
Mirikizumab and lebrikizumab failed to earn approval for one of the least-serious reasons: manufacturing-related problems. In both cases, the FDA did not question the medicines' safety or efficacy. In other words, the probability that they will make it to the market eventually is functionally equivalent to 100%.
Donanemab failed to cross the last regulatory hurdle because Lilly's application package was centered around a phase 2 study that did not have enough patients with long-term follow-up.
But the biotech was requesting accelerated approval, which would have required it to conduct a confirmatory study to earn full approval. Since Jan 19, which is when the company received the CLR for donanemab, Lilly has completed a successful phase 3 study for the medicine and has once again requested approval from the FDA. At least this time around, the agency is unlikely to have concerns regarding lack of follow-up.
What does this mean for investors?
One of the reasons Lilly's stock continues to perform well is that the company's financial results are stellar. In the second quarter, the top line soared by 28% year over year to $8.3 billion. On the bottom line, adjusted net earnings per share of $2.11 jumped by 69% compared to the year-ago period.
Lilly's lineup already features several drugs whose sales are growing fast. None of them can come close to Mounjaro, a diabetes medicine that was approved last year. In the second quarter, Mounjaro's sales came in at $979.7 million, compared to just $16 million in the prior-year quarter.
Mounjaro should also eventually earn approval in helping with weight loss, an indication that will catapult its sales even higher for the next several years. The market for obesity drugs is on a high growth path.
Lilly's lineup features other treatments such as cancer medicine Verzenio and immunosuppressant Taltz. Jaypirca should also contribute meaningfully to the company's top line relatively soon. Adding donanemab, mirikizumab, and lebrikizumab to the list of its medicines is almost icing on the cake. That's to say nothing of the company's dividend, which has doubled in the past five years alone.
So Eli Lilly's regulatory problems this year, while real, do little to change the company's long-term prospects. That's why investors should still be able to safely invest in the stock.
