Eli Lilly is the IBD Stock Of The Day as the company explores new methods of treating Alzheimer's disease and obesity, driving LLY stock near record highs.
Colin Bristow, an analyst with UBS, says 2023 will be a "big year" for Mounjaro and in Alzheimer's disease. Mounjaro is Eli Lilly's next-generation diabetes treatment. But the company is also testing it in patients with obesity. There, it will rival Novo Nordisk and, potentially, Amgen.
Investors will also watch closely how the Food and Drug Administration handles a Biogen Alzheimer's drug as it will have implications for Lilly's own drug, donanemab.
All of this comes after Lilly offered a lighter-than-expected earnings outlook for 2023.
"We acknowledge these near-term risks and agree there could be pressure on the stock into these events, especially the donanemab readout, but view the long-term thesis as very much intact," Bristow said in a recent note to clients. He has a buy rating and 420 price target on LLY stock.
LLY Stock Finds New Support
Lilly shares are finding support at their 21-day, 50-day and 10-week moving averages, according to MarketSmith.com. Shares are on track to form a flat base after this week with a buy point at 375.35, though an early opportunity could present itself with a move above the Dec. 29 high of 370.95.
LLY stock lost 0.2% to close at 364.99.
Part of that comes on increased enthusiasm for weight-loss drugs with Novo, Lilly and Amgen at the forefront. Novo sells Wegovy, while Lilly is trying to follow with Mounjaro. Distantly trailing the two, Amgen has an earlier-stage drug that could lead to faster weight loss.
Eli Lilly is submitting information to the FDA to request approval for Mounjaro in obesity. It's on track for a potential approval in late 2023 or early 2024. The company is also testing a next-gen approach to obesity treatment. This drug, called retatrutide, could ultimately outperform Mounjaro in weight loss. Obesity news has helped spark LLY stock.
"The (retatrutide) weight loss slope at 48 weeks exceeds what was seen with (Mounjaro) at the same time point," UBS' Bristow said. This implies "continued separation/differentiation with more time."
Lilly also has an oral treatment for diabetes and obesity in the works. Most drugs in this class — targeting a hormone called GLP-1 — are injections. The company has a chance to replace its leading diabetes treatment, Trulicity, with this pill.
Alzheimer's Drug In The Works
LLY stock is in a more complicated place with Alzheimer's disease.
Donanemab works by removing built-up plaque in the brain called beta amyloid. Experts are split on whether doing so leads to a cognitive benefit. Biogen is banking that it does. Over 18 months, recipients of Biogen's drug showed a 27% slower decline in cognition than placebo recipients.
Earlier testing suggests donanemab could remove more plaque than Biogen's drug. It's possible that could lead to a greater impact on cognition. But Roche also had a failure in this space, and the Centers for Medicare and Medicaid Services already refused to broadly reimburse for Biogen's first approved drug with this mechanism.
Biogen is facing a pair of questions likely to weigh on LLY stock. Will the FDA approve its second amyloid-removing drug? And, if so, will Medicare reimburse for it?
A Phase 3 study "of Eli Lilly's donanemab, which has previously shown potentially best-in-class amyloid-lowering based on a positive Phase 2 study, is scheduled to read out in 2023," William Blair analysts said in a recent note. "(This) could provide yet another key piece of evidence of the (amyloid) mechanism, if positive."
Highly Rated LLY Stock
It's important to note that LLY stock ranks second in its medical-diversified industry group, just behind AstraZeneca.
Shares have a strong Relative Strength Rating of 92. This means Lilly stock lands in the top 8% of all stocks in terms of 12-month performance, according to IBD Digital.
Shares have a slightly lower Composite Rating of 85, which tracks fundamental and technical measures.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
