Here's why Biogen's promising Alzheimer's drug data is also good news for Eli Lilly

Published Wed, Sep 28 20223:50 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Positive trial results for Biogen 's (BIIB) experimental, late-stage Alzheimer's treatment are also good news for Club holding Eli Lilly (LLY), which is working in its own drug to battle the disease. Biogen shares rocketed higher by more than 30% on Wednesday as Wall Street cheered the results of the Phase 3 study. Japanese pharmaceutical firm Eisai is developing the drug alongside Biogen and led the trial. Biogen will help commercialize it. LLY shares jumped, too, up more than 8% at one point in a sign investors believe Biogen's results bode well for Lilly's similar Alzheimer's drug. The move helped Eli Lilly notch a fresh 52-week high Wednesday, the only stock in the S & P 500 to do so. That 52-week high is also an all-time high. Bottom line Biogen's topline data appears to be encouraging, suggesting the Alzheimer's drug helped slowed cognitive decline. However, we maintain our belief that Eli Lilly's experimental Alzheimer's treatment is best-in-class. Plus, we think Eli Lilly has more going for it overall than Biogen, making it a more attractive investment. Experimental Alzheimer's drugs all carry inherent risk, given the long list of failures. LLY has other proven franchises that we believe are worthy of investing in, regardless of what happens with its latest dementia therapy. One example: Eli Lilly's new diabetes drug that's also shown immense promise as a weight-loss treatment. Club members may recall we've been bullish on its prospects for months, a shining star in Lilly's stellar drug pipeline. Last week, UBS analyst Colin Bristow said it could be "the biggest drug ever" if it receives regulatory to treat obesity. It already has been approved in the U.S. to treat type 2 diabetes. The UBS analyst has a buy rating on LLY shares and success of the company's Alzheimer's drug is "not critical" to that favorable outlook. We currently rate LLY as a 2 for the Club , meaning as current investors in the stock we'd like to see a pull back before considering buying more. Make no mistake, though, we expect really big things from Lilly and not just from its Alzheimer's work. Drug background Like Biogen's Alzheimer's drug lecanemab, Lilly's donanemab is an antibody that tries to reduce buildup on the brain of the amyloid beta protein . Clumps of amyloid beta result in a plaque in the brain, specifically between neurons. That plaque is found in the brains of Alzheimer's patients. Millions of people in the world are currently living with Alzheimer's, which is the most common form of dementia. Despite the disease's prevalence and devastating effects, researchers still have many unanswered questions about its exact workings, including the specific role amyloid beta plaque plays in Alzheimer's progression. There are other abnormalities found in the brains of Alzheimer's patients, including a plaque related to clumps of the tau protein. This is important to keep in mind when trying to draw conclusions about potential Alzheimer's treatments; the fatal disease is very complex and no cure for it has been found. In a CNBC interview Wednesday, former Food and Drug Administration commissioner Dr. Scott Gottlieb helped explain the competing ideas around amyloid beta. For his part, he said, the Biogen-Eisai results may prompt people to "reconsider the entire approach to the treatment of Alzheimer's with drugs that target amyloid plaque." "The long-running debate has been whether drugs that can reduce plaque formation, or remove the existing plaque, would have a benefit," Gottlieb said. "Some believe that the plaque was merely a result of the disease process and by targeting it, you're not affecting the underlying course of the disease." Biogen's latest results The Alzheimer's drug reduced patient decline by 27% compared with trial participants who took the placebo, Biogen said in a press release Tuesday night, issued in conjunction with Eisai. As early as six months into treatment with lecanemab, the companies said, patients began to show statistically significant benefits relative to the placebo group. They also said the drug's safety profile was "within expectations." The randomized Phase 3 trial — called Clarity AD — enrolled 1,795 people across the world who have early Alzheimer's disease. "The baseline characteristics of both placebo and lecanemab groups are similar and well balanced," according to the companies. Eisai is set to present the full Phase 3 study on Nov. 29 at the Clinical Trials on Alzheimer's Congress. A peer-reviewed medical journal also is slated to publish the results. Another thing to keep in mind: Biogen and Eisai worked together on the development of Aduhelm, a different drug targeting amyloid beta plaque that received accelerated FDA approval in June 2021 on the condition that Biogen keep studying its efficacy. Aduhelm has proven controversial and commercially unsuccessful, with many skeptics saying the data did not convincingly show it really slowed cognitive decline. The federal government's Centers for Medicare & Medicaid Services (CMS) currently provides very limited insurance coverage for Aduhelm. Biogen has been critical of CMS's decision . Analyst reaction & Lilly implications Multiple analysts upgraded Biogen's shares to a buy equivalent after lecanemab's topline results were made public, including BMO Capital Markets, Baird and Mizuho Securities. "This is pretty much a best-case scenario for the program as there doesn't appear to be much ambiguity in the results and the efficacy and safety appear to be best-in-class, if lecanemab doesn't wind up being the only one in the class," Baird analyst Brian Skorney wrote in a note to clients. The analyst also reminded clients he's generally been bearish on drugs targeting beta-amyloid. BMO analyst Evan David Seigerman expects lecanemab to receive full FDA approval and be covered by CMS, he wrote in a note to clients, contending the topline data are "unambiguously positive" unlike the contentious Aduhelm. For Eli Lilly, in particular, UBS's Bristow wrote that Biogen's results represent "the first true late-stage clinical validation of the a-beta hypothesis, which is a positive readthrough for LLY's donanemab." The a-beta hypothesis is what we quoted Gottlieb discussing earlier. It is, essentially, the belief that slowing or reducing the accumulation of amyloid plaque on the brain can slow the rate of cognitive decline among Alzheimer's patients. UBS said that while Biogen's topline results reduce some risk around targeting amyloid beta, it also raises the stakes around Eli Lilly's Phase 3 trial results, which are expected in the first half of 2023. A similar dynamic is now in play for Roche, according to UBS. The Swiss pharma giant is also working on a drug that attacks amyloid beta. "With these data coming in significantly above expectations, we note a high bar has now been set for LLY and [Switzerland's Roche]," Bristow wrote. "However, we would also highlight, this is a large market opportunity that can support multiple players." (Jim Cramer's Charitable Trust is long LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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The Eli Lilly logo is shown on one of the company's offices in San Diego, California, Sept. 17, 2020.

Mike Blake | Reuters