When a company's big plans go awry, it's always worth reconsidering the merits of an investment. On March 8, regulators at the Food and Drug Administration (FDA) gave Eli Lilly (LLY 1.19%) an unwelcome surprise. Rather than granting approval to commercialize the company's Alzheimer's disease drug donanemab as expected, the FDA opted to delay its decision.
Instead, the FDA planned to call an advisory committee composed of third-party experts who would discuss and deliver a non-binding vote on whether to approve the drug. As there hasn't yet been a date set for when the advisory committee will meet, it's now quite clear that the timetable for launching donanemab will not follow management's preferred schedule.
Could the stock still be a buy even though there are obviously some reservations among regulators about the drug's merit?
Running for the hills is an overreaction
Let's start by gauging the importance of the donanemab program. According to a report by Fortune Business Insights, the market for Alzheimer's drugs could be worth as much as $5.2 billion by 2030. So the market is an important one more for its humanitarian implications (more drug sales could lead to less suffering) than for its actual lucrativeness for a big pharma company.
Nonetheless, Eli Lilly's neurodegeneration pipeline has a couple of other programs for Alzheimer's, one of which is in phase 3, and another of which is in phase 2. So it will soon enough get another bite at the apple, even if, against expectations, the FDA ultimately ends up rejecting donanemab entirely. No matter how unlikely it is, a total failure with the program would still look bad and hurt the stock slightly, but not by too much. Here's why.
In 2023, Eli Lilly had $34.1 billion in revenue. On average, analysts see its top line growing to $45 billion in 2025, of which $837 million is expected to be attributable to sales of donanemab, or approximately 1.8% of total revenue. That's hardly an amount of sales to lose any sleep over.
Also, Eli Lilly's most advanced Alzheimer's candidate appears to perform modestly better than earlier medicines, like those produced by Biogen, while retaining a relatively similar and unfortunately fairly burdensome side effect profile. And Biogen's prior efforts to commercialize such medicines became mired in controversy due to poor efficacy and a steep price tag.
Even a worst-case scenario won't stop this train
In case it wasn't clear, the regulatory situation with donanemab, while a bit unusual, is not in any way a problem for Eli Lilly's stock. And when considering the other irons it has in the fire right now, it's still worth buying.
In particular, Eli Lilly's anti-obesity medication, Zepbound, is well on its way to becoming a blockbuster drug, with more than $1 billion in annual sales. It sold almost $176 million in 2023, and it didn't even have the benefit of being on the market for the whole year. Similarly, its drug for type 2 diabetes, Mounjaro, brought in more than $2.2 billion last year, compared to just $279 million a year prior. Supplies of both products are so strained by white-hot demand that the company is upgrading its manufacturing facilities.
With so much growth in its metabolic disease portfolio alone, succeeding with commercializing an Alzheimer's therapy would be a bonus. And that's before even taking into account any of the other programs in the pipeline or products on the market. So Eli Lilly is still a buy, and the latest news about donanemab doesn't change anything about that fact.
