January 19, 2021
Markets PAID

Lilly's Alzheimer's News Brings Plenty of Upside, Limited Risk

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Eli Lilly shares jumped after the news on its experimental Alzheimer’s disease treatment.

Eli Lilly shares jumped after the news on its experimental Alzheimer’s disease treatment.

Photo: mike blake/Reuters

Positive data from
Eli Lilly’s
experimental Alzheimer’s disease treatment is hopeful news for patients and, for now, a winner on Wall Street.

Lilly shares jumped 12% in morning trading Monday after the company said the drug donanemab slowed patients’ decline in memory and ability to perform activities of daily living by 32% after 18 months compared with those receiving a placebo. The news boosted Lilly’s market value by nearly $20 billion.

Those benefits will need to be confirmed in a larger trial. Sadly, the drug industry has had several prospective Alzheimer’s drugs that showed promise and created stock market gains but eventually fizzled out. The Lilly data are from just 272 patients.

Of course, the financial benefits of being the first to crack the code would be massive. There are 5 million Americans currently living with the fatal disease, according to the Alzheimer’s Association. The population is aging, so that figure is likely headed higher in the years ahead. The disease has a severe impact on quality of life, so demand would be high even for a drug that just slows disease progression.

Lilly now has a chance to be first in class. U.S. regulators are set to decide whether to approve

Biogen’s
experimental treatment aducanumab by March 7. But an advisory panel of outside experts convened by the Food and Drug Administration in November voted overwhelmingly that the best available data doesn’t show the drug is sufficiently effective.

While one could easily argue that its market-value gain exceeds the probability-weighted potential payoff, Lilly’s core business is in fine health. Speculating on a breakthrough is therefore a fairly safe proposition. The company said last month that it expects to book between $26.5 billion and $28 billion in revenue this year. That should top 10% sales growth from 2020 at the midpoint of the forecast range. The shares trade at about 23 times this year’s adjusted earnings forecast. While that is no bargain, it hardly seems unreasonable in a market teeming with speculative manias.

Betting that this time is different in the battle against Alzheimer’s is a fairly inexpensive proposition.

Write to Charley Grant at charles.grant@wsj.com