The stock of Eli Lilly (LLY -1.38%), the world's largest pharmaceutical company, keeps reaching new all-time highs, largely off the back of its weight loss and diabetes drugs, Zepbound and Mounjaro.
Demand for these drugs, whose competitors include Novo Nordisk products Wegovy and Ozempic, has been so high that both firms have struggled to manufacture enough, resulting in shortages.
Eli Lilly's stock has risen 53% so far this year due to the incredible success of these products. However, the firm is currently developing another drug that could send the stock price even higher.
What is Eli Lilly's latest drug?
Donanemab, a treatment to slow the progression of Alzheimer's disease, is currently in the final phase of FDA review. One very positive sign for the eventual approval of donanemab is that on June 10, a unanimous panel of independent advisors to the FDA endorsed the treatment for early stage Alzheimer's disease. Although this does not guarantee approval, the FDA usually follows the recommendation of such panels. It is possible that the drug could be approved by the end of the year.
Noting study results, the Alzheimer's Society, a registered charity in the United Kingdom whose work includes funding dementia research, said in a post that donanemab works well to slow the progression of Alzheimer's. The organization noted that "after one year on donanemab, nearly half of the people taking it had no decline in memory and thinking skills. People taking donanemab also had a 40% reduction in the decline of their ability to carry out daily activities, such as managing finance, driving and carrying out hobbies."
The group also noted that: "These are exciting results, but we don’t fully know what this will mean in the long term for people who have taken donanemab as the trial only lasted 18 months. Also, 91.5% of the participants in the trial were from a white background, so we need more diversity in clinical trials to prove that these drug treatments will work for everyone with early Alzheimer’s disease."
The drug has been linked to deaths in rare cases, but researchers believe that serious side effects can be prevented by screening out patients who carry certain genes.
Alzheimer's outsize market opportunity
The Alzheimer's treatment market is large and expected to grow. Currently, around 6.9 million Americans are living with Alzheimer's, and approximately 55 million people struggle with the disease and other forms of dementia worldwide. Experts estimate that the market will grow by 20% annually from 2023 to 2030.
Lilly's main competitor is Leqembi, from Biogen and Eisai, which gained FDA approval in 2023 and works by reducing amyloid plaques in the brain. Eisai, the Japanese firm that makes the drug, predicts it will bring in $2 billion in revenue by March 2027.
Donanemab, which also targets amyloid plaques in the brain, has some notable benefits over Leqembi that should give it an advantage. Reported studies have shown that donanemab slows progression of the disease more, and it requires blood infusions once every four weeks versus once every two weeks for Leqembi.
Medicare coverage
Another reason to feel upbeat about the future of donanemab is that Medicare has already agreed to cover 80% of the cost of Leqembi, and this suggests it's likely to do the same for donanemab if it is approved by the FDA. Medicare coverage would open the drug up to a massive government-subsidized market as nearly everyone who would be a prospective user of the drug in the U.S. would be on Medicare, the federal health care insurance program for people 65 and older, and for the disabled.
Leqembi costs more than $26,000 per year. There is no word yet on what the cost of donanemab would be, but if we assume it would be in a similar range, it would be a big revenue opportunity for Eli Lilly.
With positive signs for the eventual approval of donanemab, the size of the Alzheimer's market, and the high potential for coverage by Medicare, this new drug could send Eli Lilly's share price even higher.
