Eli Lilly (NYSE: LLY) got some good news from regulators last week: Its Alzheimer’s treatment got the green light from the Food and Drug Administration (FDA).
The new drug, Kisunla, has the potential to be a huge success for the company and generate billions in revenue. But despite the latest approval, Eli Lilly’s stock isn’t skyrocketing.
Normally, when a health care stock receives positive news about a long-awaited treatment, there is an increase in the share price. In Lilly’s case, that simply hasn’t happened. He even refused for a short time after the news. Why is the stock not rising?
Approval had already been placed on stock valuation
The simple reason behind Eli Lilly not moving after the FDA decision is that it was not unexpected. Now, if only the regulators had come out and said they were not proceeding with his approval, that it would have resulted in a significant decline for the health care stock. But a month ago, investors learned that an FDA advisory panel was unanimous in favor of approving the treatment and that any risks associated with it outweighed its benefits.
And even before that, there were signs that the drug was likely to get approval. In clinical studies, donanemab (the generic name for Kisunla) was acting similarly to Leqembi, a drug from Biogen which received approval last year. For donanemab not to receive approval would be a major surprise given the comparable results it has shown so far.
This appears to be a classic case of “buy the rumor, sell the news” with Lilly stock, especially when you consider the brief price drop last week. But there’s another reason investors shouldn’t be surprised by the relatively soft moves in stocks lately.
Eli Lilly has become a shareholder of GLP-1
Kisunla has the potential to bring in $5 billion in annual revenue at its peak. It’s a great product for Lilly and a way to diversify its revenue mix while growing its operations. But the reason the stock has doubled in the past year isn’t because of its Alzheimer’s treatment or even its solid financials. It is about its potential in the anti-obesity market.
Lilly has multiple glucagon-like peptide 1 (GLP-1) treatments that have the potential to change the game for its business. Zepbound and Mounjaro are the names investors often think of when they hear about the company. The former is approved for weight loss while the latter is a treatment for diabetes. Both contain the same active ingredient, tirzepatide, which analysts say could generate $50 billion in peak annual revenue.
Adding more products to the mix is great news for Eli Lilly, but ultimately it’s GLP-1 that’s gotten investors excited about the stock in recent years, and that’s what’s likely to move the needle on it. the future. Getting approval for Kisunla is a positive development for the drugmaker, but investors shouldn’t be surprised that it isn’t resulting in big gains for the stock given that approval was highly likely.
Is Eli Lilly Stock Still a Buy?
Although Lilly’s stock is not rising after Kisunla’s approval, that doesn’t mean the stock has peaked. There is still much more growth ahead for the business, especially as it invests more in building and expanding its manufacturing capacity.
The stock is trading at a fairly high valuation of more than 130 times earnings, but given how quickly the company’s top and bottom lines can grow in the future, it may not be too late for long-term investors to buy shares of Eli Lilly. .
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.
Eli Lilly’s Alzheimer’s drug gets FDA approval. Here’s why stocks aren’t rising. was originally published by The Motley Fool