With the coronavirus pandemic causing massive economic damage, the future of retail, restaurants, gaming, transportation and travel industries, looks a little bleak, at least for this year. However, there are some industries like drug/biotech, healthcare, consumer staples and insurance that have probably been the least impacted by COVID-19. Among these, the drug and biotech sector has seen several of its large companies outperform the industry. These include Eli Lilly & Company’s LLY, AbbVie ABBV, Roche RHHBY, AstraZeneca and Sanofi.
Here we discuss the reasons why Lilly’s stock is up 27% this year so far in contrast to the 1.1% decline of the industry.
A prime reason for Lilly’s shares to rise this year is the rapid progress in its efforts to make medicines/antibodies to treat COVID-19. Lilly already has two antibody candidates in phase I studies for treating COVID-19. In June, its partner China-based Junshi Biosciences dosed the first healthy volunteer in a phase I study on JS016, their antibody candidate for treating COVID-19.
Lilly signed the deal with Junshi last month to co-develop therapeutic antibodies for the potential prevention and treatment of COVID-19. Lilly will soon begin its phase I study in the United States.
In June, Lilly also initiated a phase I study on LY-CoV555, its second lead antibody therapy candidate in collaboration with private biotech, AbCellera. Lilly signed the deal with AbCellera in March to create antibody therapies to treat and prevent COVID-19.
The phase I study on LY-CoV555 will evaluate its safety and tolerability in patients hospitalized with COVID-19. Results from the study are expected soon, following which it plans to initiate broader efficacy studies.
Meanwhile, Lilly has also begun a phase III study to evaluate its JAK inhibitor, Olumiant (baricitinib) as a potential treatment for hospitalized patients diagnosed with COVID-19. Olumiant is presently approved for the treatment of moderately to severely active rheumatoid arthritis (RA). The study will complement an already ongoing study of Olumiant with Gilead’s GILD remdesivir being conducted by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH) for hospitalized patients with COVID-19 infections.
Besides, the company is having a relatively fruitful year in terms of positive pipeline and regulatory updates.
Among pipeline news, Lilly’s breast cancer drug, Verzenio significantly reduced the risk of cancer returning in a large late-stage study in patients with high risk HR+, HER2- early breast cancer. Verzenio is approved to treat advanced breast cancer and is not approved for an early-stage breast cancer indication. This data significantly boosted the company’s stock price as the study data could be a game changer in treating breast cancer. Approximately 30% of people diagnosed with HR+, HER2- early breast cancer are at risk of their cancer returning. Verzenio is the only CDK4 & 6 inhibitor to demonstrate a statistically significant reduction in the risk of cancer recurrence in early-stage breast cancer patients
This year so far, Lilly has gained approval for two key new medicines, Retevmo/selpercatinib (RET-altered lung and thyroid cancers) and Lyumjev/Ultra-rapid Lispro (type I and type II diabetes). While Retevmo was approved in the United States in May and is under review in EU, Lyumjev is approved both in the EU and United States. Lilly expects to launch both the medicines this year. In line extensions of already marketed drugs, Lilly gained FDA approval for Cyramza for first-line lung cancer, Taltz for non-radiographic axial spondyloarthritis (nr-axSpA) and Trulicity for cardiovascular indication. All these approvals for new drugs and line extensions can bring in additional revenues for the company.
It goes without saying that Lilly has its share of challenges lined up for 2020. The reduced non-COVID healthcare activities due to business disruptions and global economic challenges emanating from the pandemic may hurt its profits this year. Other headwinds are generic competition for several drugs, rising pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, price reductions from increased utilization of patient affordability programs, and price cuts in some international markets like China, Japan and Europe. Nonetheless, Lilly still expects revenue growth to be driven by higher demand for its growth drugs including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant, Emgality, Baqsimi as well as potential revenues from product launches.
It seems the company’s strong pipeline, consistent outperformance of key drugs, cost cuts and regular strategic deals will keep the stock afloat through 2020 despite the coronavirus-led economic downturn.
Lilly currently carries a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
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