Eli Lilly (LLY 0.50%) has been one of the hottest healthcare stocks to own in recent years. The company is now the most valuable healthcare company in the world, with a valuation of around $550 billion. So, investors may be wondering whether the stock has peaked, and perhaps it's time to hold off on buying it or cashing out their investments in the healthcare stock.
But that could be a mistake. Eli Lilly has a lot of growth left in its business. And while the hype has largely been around its weight-loss treatment Zepbound, investors shouldn't overlook another important catalyst, which could be just around the corner.
Its early Alzheimer's treatment may soon be approved
One of the most promising assets in Eli Lilly's pipeline is donanemab, which helps people with early Alzheimer's. In clinical trials, it has shown to be effective in slowing the rate of cognitive decline. Scientists found that it could slow the disease's progression by 29% based on the Clinical Dementia Rating Scale. That compares favorably to the 27% decline that Biogen's Leqembi has demonstrated, and it obtained approval from regulators in July.
There are other things for the Food and Drug Administration (FDA) to consider, including side effects. However, donanemab achieving potentially better results than Leqembi suggests its approval is highly probable. The only question may be when the FDA will actually approve the drug. Eli Lilly previously stated that a decision from the FDA could come either by the end of 2023 or the early part of 2024.
Yet another potential blockbuster to build around
The need to treat Alzheimer's is massive. More than 6 million Americans live with the disease today. And according to the Alzheimer's Association, that figure will more than double to 13 million by 2050.
Demand for the medication will likely be strong, especially given its encouraging trial results. At its peak, donanemab should be a blockbuster drug, with peak sales potentially around $5 billion, according to analysts. Ultimately, much will depend on how much support and coverage there is from Medicare since the treatment may cost $20,000 per year.
Shares of Eli Lilly may remain hot in 2024
Approval of donanemab in the weeks ahead could help ignite Eli Lilly's stock. While investors have been focusing on the company's weight-loss drug, Zepbound, which obtained approval in 2023, Eli Lilly's business is broader than that. Reminding investors that donanemab is another growth catalyst in its portfolio may make the stock's seemingly expensive valuation appear a lot more tenable.
Eli Lilly stock trades at close to 50 times its estimated future earnings. While that can be a steep price for the healthcare stock, that's pricing in a lot of earnings growth in the years ahead. If donanemab obtains approval, that will set Eli Lilly's business up for even greater profits and growth in the future.
Eli Lilly remains a good stock to buy
Eli Lilly's valuation may look expensive, but there's good reason for it -- investors are paying a premium because they know the business will get a lot bigger with the recent approval of Zepbound, which analysts expect will generate tens of billions in revenue for the company in the long run. And with approval for donanemab potentially not far behind, it may not be long before there's another reason to boost expectations even higher for Eli Lilly.
If you're willing to buy and hold for the long term, Eli Lilly is one of the best stocks you can invest in today. Even at its current valuation, the stock may still be cheap, given the business's potential in the long run. It wouldn't be surprising for this to end up being the first trillion-dollar healthcare company at some point in the future.
