Eli Lilly: Alzheimer’s Drug Posts Strong Efficacy but Side Effect Profile Causes Some Concerns

Eli Lilly Stock at a Glance

• Fair Value Estimate: $289.00
• Star Rating: 2 stars
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide

Eli Lilly Update

Eli Lilly LLY reported largely positive phase 3 data with Alzheimer’s drug donanemab in line with our expectations, and we don’t expect any major changes to the firm’s fair value estimate. In the study, the drug impressively met all primary and secondary endpoints related to slowing cognitive and functional decline. However, the side effect of serious ARIA (swelling of the brain) occurred in 1.6% of patients and led to at least two deaths. Despite the serious but rare side effect, we expect the drug will gain approval in early 2024 based on the strong efficacy, adding another new likely blockbuster launch for Lilly while also reinforcing the firm’s wide moat.

We expect donanemab to generate peak annual sales of over $7 billion based on the strong efficacy and limited treatment options. We currently expect a fairly evenly split market between donanemab and Biogen’s Leqembi.

While cross-trial comparisons are statistically problematic, we view the efficacy data between the two drugs as relatively similar in the broader early Alzheimer’s patient group. Donanemab’s efficacy in the targeted intermediate tau group looks particularly strong, but Leqembi’s key phase 3 Clarity trial did not stratify based on tau levels.

We believe donanemab may have an edge with this tau-segmented patient group, which represents more than one third of the market. However, on the side effect profile, higher rates of ARIA with donanemab may push more patients without intermediate tau levels toward Leqembi. Also, Leqembi didn’t cause any patient deaths in the pivotal study. We expect full details of the phase 3 donanemab data at the July Alzheimer’s Association International Conference to help provide more perspective on the drug’s efficacy and side effect profile.