Insights

Why Eli Lilly’s Immunology Prospects Look Promising

Top pharmaceutical company Eli Lilly‘s (NYSE: LLY) diabetes division achieved a key milestone with the approval of Mounjaro in May for type 2 diabetes. But not to be outdone, the company’s immunology division has responded with a string of good news.

This is a turnaround from earlier this year when the prospects of key immunology blockbuster Olumiant were dampened by Food and Drug Administration (FDA) concerns over its safety. Lilly’s strengthening outlook for its immunology treatments has the potential to shore up future revenue growth. 

Image source: Getty Images.

Lingering safety concerns 

Lilly has two blockbuster drugs for treating autoimmune diseases – top-selling Taltz for several types of arthritis and the skin condition plaque psoriasis, and Olumiant for rheumatoid arthritis. Olumiant belongs to a class of drugs known as JAK inhibitors, which were initially heralded as providing a targeted mechanism of action that could improve treatment in a number of autoimmune diseases, with the convenience of oral, rather than injectable, treatment.

Last fall, the FDA cracked down on the JAK inhibitors due to safety concerns. Data from a large clinical trial suggested that this class of drugs could increase the risk of serious heart-related events and certain types of cancers. Although Lilly’s Olumiant was not tested in the trial, as a JAK inhibitor it was included on the list of drugs that required a new label with a stricter safety warning.

This looked like bad news, with the potential to hurt Olumiant’s existing sales in rheumatoid arthritis as well as prevent it from gaining approval for other diseases. In January, Lilly announced that it was halting its phase 3 trials in lupus, although the company claimed the decision was based on mixed results in reducing disease activity rather than a poor safety profile. But safety concerns could certainly block approval for less-severe indications, such as eczema, where Lilly had already primed shareholders to expect a complete response letter from the FDA for the atopic dermatitis submission.

Its immunology lineup might fill some gaps

Olumiant still has the potential to expand into diseases that are difficult to treat. In May, the FDA granted approval for Olumiant as a stand-alone treatment for hospitalized COVID-19 patients. This is an improvement over its Emergency Use Authorization, which allowed it to be administered only in combination with Gilead‘s (NASDAQ: GILD) Veklury. 

More good news arrived in June when the FDA approved the drug for severe alopecia, which is an autoimmune disorder that causes hair loss. This marks the first treatment showing hair regrowth in a group of patients with a large unmet need, as close to 1 million people suffer from a severe form of the disease and previously had no options other than to disguise their hair loss using wigs or false eyelashes. 

Lilly also recently announced good news from two monoclonal antibody treatments in its late-stage immunology pipeline. The company completed its second phase 3 trial for mirikizumab in irritable bowel syndrome in late May, and the positive study results will support its submission for ulcerative colitis.

The company also has an alternative eczema treatment that might take some of the sting away from the FDA rejection of Olumiant. Lebrikizumab achieved strong phase 3 results in atopic dermatitis earlier this month, and Lilly intends to file a regulatory application later this year.

What’s the bottom line?

Investors have high expectations for Lilly’s pipeline, pushing the stock to a price-to-earnings ratio of 44, which is relatively pricey for a healthcare stock. Potential mega-blockbusters Mounjaro for type 2 diabetes and donanemab for Alzheimer’s tend to grab much of the spotlight within the lineup of 2022 regulatory submissions.

But the immunology group should not be counted out. Both of its top-selling medicines posted excellent revenue growth in the first quarter, with Taltz up 21% and Olumiant up 32% year over year, well above the overall company revenue growth of 15%. 

Of course, Olumiant sales are boosted by its use in COVID-19 hospitalizations, so the full impact of the new safety warning on overall drug sales is not yet known. But the recent vote of confidence from the FDA as the sole treatment enabling alopecia patients to regrow lost hair, and as a stand-alone COVID-19 treatment, should drive further growth. 

Meanwhile, Taltz is Lilly’s third-best-selling drug outside of COVID-19 treatments. Safety concerns surrounding the JAK inhibitors might indirectly benefit Taltz since it competes against these drugs within its indications. If doctors prescribe fewer prescriptions for the JAK inhibitors, Taltz may be able to recapture some of the market share it lost. 

All in all, the positive news coming out of the immunology group should help Lilly maintain its upward momentum.

Natalie Forbes has positions in Eli Lilly and Company. The Motley Fool has positions in and recommends Eli Lilly and Company and Gilead Sciences. The Motley Fool has a disclosure policy.

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