US drugmaker Eli Lilly is riding a wave of investor optimism and media hype about new treatments for two of the biggest public health problems: obesity and Alzheimer’s.
Scientific breakthroughs for both diseases have seen its stock soar 75 percent to a record high over the past 12 months. This week it leapfrogged Johnson & Johnson and UnitedHealth to become the world’s most valuable drugmaker and healthcare company by market capitalization.
Chief scientific and medical officer Daniel Skovronsky told the Financial Times that Lilly plans to launch more than 20 new drugs over the next decade to sustain its growth and aim to become the first trillion dollar healthcare company.
In addition to Alzheimer’s disease and obesity, it is also looking to expand its drug pipeline in oncology and develop treatments for underserved diseases such as chronic pain, he said.
“It is not enough to have good medicine. Let’s have some great ones that changed medical history forever,” said Skovronsky, who spearheaded Lilly’s research and development efforts to develop obesity and Alzheimer’s drugs.
“The fact that there has never been a trillion dollar healthcare company. That’s a bit of a shock. There are a few things I think are more important to invest in. . . Hopefully this target can be achieved,” he said.
Lilly scored a major win last month when it published results of a late-stage trial showing the Alzheimer’s treatment donanema significantly slowed memory loss and cognitive decline. It expects to receive regulatory approval later this year and carve out a market that could be worth $14 billion a year by 2030 with rivals Eisai and Biogen.
The second drug that lit the fire under investors was Mounjaro’s diabetes and weight loss treatment.
US regulators approved it to treat diabetes last year. Then in April, Lilly revealed a large trial had found that it also reduced body weight by an average of 16 percent over 17 months. Regulators are expected to approve it as an obesity treatment in the fall. BMO Capital Markets estimates this market could be worth $100 billion a year by the middle of the next decade.
Mounjaro is one of a new class of drugs known as GLP-1 agonists that work by lowering blood sugar levels after eating and suppressing appetite.
“Lilly has really hit the oil with her obesity franchise,” said Colin Bristow, an analyst at UBS, which estimates Mounjaro’s annual sales of $35 billion by 2035.
“They have discovered what appears to be a best-in-class asset and a best-in-class pipeline in one of the largest untapped therapeutic therapeutics markets.”
Lilly faces competition from Danish rival Novo Nordisk, makers of diabetes and weight loss drugs Ozempic and Wegovy.
But late-stage trials show that when Mounjaro is used to treat diabetes, it causes more significant weight loss than Wegovy, although there have been no direct comparison trials. In June, Lilly published interim trial results for a drug called retatrutide, which showed it helped people lose a quarter of their body weight in 48 weeks – the highest reduction for an obesity drug.
Lilly’s success was hard earned. Back in July 2016 when David Ricks was named the successor to chief executive John Lechleiter, it was rebuilt after declining revenues caused by expired patents on several top-selling drugs. Months later, his Alzheimer’s drug Solanezumab failed in a major clinical trial and US regulators delayed approval of an experimental therapy for rheumatoid arthritis.
The company cut 485 jobs, mainly from its Alzheimer’s division, but has not given up on its goal of developing the first treatment for the disease. Lilly raised $1.7 billion in cash by relinquishing a 20 percent stake in her animal health unit, putting money into R&D and focusing her efforts on five therapeutic areas: diabetes and obesity, neurodegeneration, cancer, immunology, and pain management.
“It was tough,” said Skovronsky, adding that some at the company wanted to drop Lilly’s two decades of trying to develop an Alzheimer’s drug and focus on other areas.
Lilly also often faces external criticism from investors and elsewhere about why she invests so much in R&D, usually about a quarter of her annual income, she says.
However after discussions with Ricks and the board, the decision was made to continue the Alzheimer’s research, which builds on Solanezumab.
Skovronsky says Lilly’s commitment to R&D and her focus on long-term internal areas of expertise are critical to her success. He added that the company’s relatively remote location in Indiana meant many employees stayed for long periods of time, isolating them from certain external pressures.
“We have some advantages in terms of being able to pursue sometimes unpopular ideas for long periods of time. And I think that’s important, because science takes time to figure that out. We’ve watched so many competitors jump from area to area. One day they have Alzheimer’s and the next they are out and about doing something else.
Evan Seigerman, an analyst at BMO Capital Markets, said Ricks had followed a strategy of “underpromising and delivering too much” as chief executive and avoided some of the pitfalls that have swayed rivals.
“He can really focus on the long-term growth of the company. And what’s amazing to me is that [Mounjaro] and donanemab are all kinds of local assets. These are things they really built themselves.”
Lilly had avoided the transformational but risky megamergers that were a feature of the pharmaceutical industry for the past two decades until US regulators started intervening recently. Instead, he prioritizes internal R&D and smaller acquisitions to add to his drug pipeline.
“Lilly wasn’t one of those really great addicts,” said Les Funtleyder, healthcare portfolio manager at E Squared Capital Management, which owns Lilly stock.
He says Lilly benefits from a strong research culture and breakthroughs in two of the biggest untapped pharmaceutical markets. In contrast, Pfizer has invested heavily in internal R&D without successfully bringing many blockbuster drugs to market.
“Lilly was a bit lucky as it turned out that their diabetes drug is great for weight loss and their Alzheimer’s drug is going to be approved despite questions about its efficacy and safety. But they clearly have a working R&D machine, so they’re making their own fortune,” said Funtleyder.
Despite her recent success, Lilly faces challenges meeting investors’ high expectations, given that her stock trades at 56 times expected earnings by 2023. Some doctors have warned her take on her Alzheimer’s drug could be slower than expected due to concerns about side effects. which can include brain swelling and bleeding.
For Mounjaro, analysts had assigned very high annual peak sales estimates — from $35 billion from UBS to $70 billion by Jefferies — even before the drug was approved by regulators to treat obesity. Meeting this would be difficult, especially as Lilly and Novo Nordisk struggled with production capacity, leading to shortages for Mounjaro, Ozempic, and Wegovy.
There is also no guarantee that public and private insurance companies will fund Mounjaro’s $1,000 per month for all patients, due to the high cost of treating a disease that affects about 40 percent of Americans. Or that they will agree to maintain protection for the life of the patient — studies have shown that weight usually returns after treatment is discontinued.
Skovronsky said a study published this week by Novo showing that Wegovy reduced the risk of heart attack and stroke by 20 percent would help convince insurance companies to cover the drugs.
“Now we have data to show. . . this is not an aesthetic problem. It’s a medical problem,” he said.
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