Eli Lilly jumps to all-time highs on Alzheimer's news. Here's what it means our investment

Published Fri, Apr 21 20231:05 PM EDT

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

Club holding Eli Lilly (LLY) expects U.S. health officials to make insurance reimbursement for Alzheimer's drugs easier to obtain, a policy change that, in theory, would help them become more commercially successful. It would be a boon to Lilly for sure, which has a treatment for the disease in trials. But we don't want to get ahead of ourselves before the company releases its latest Alzheimer's trial data. In an interview with Reuters , Eli Lilly executive Derek Asay said the drugmaker believes the Centers for Medicare & Medicaid Services (CMS) will eventually drop its more-stringent insurance coverage rules for a nascent class of Alzheimer's drugs that target the protein amyloid. Broad reimbursement allowed by CMS, which administers government-backed senior care, is seen as important for the expensive treatments to be accessible to patients. Lilly is expected to release phase three trial data on its latest anti-amyloid therapy, known as donanemab, by the end of June. It will likely need full approval to come to market, possibly in early 2024, based on prior Food and Drug Administration criteria . "We believe that [CMS] will provide what we would call outright coverage like they do for every other FDA-approved medication," Asay, who oversees Eli Lilly's relationship with the agency, told Reuters. Lilly shares climbed more than 2% on Friday, setting a new all-time intraday high of over $383 each, in an otherwise down day on Wall Street. The stock has soared more than 30% in the past 12 months. LLY 1Y mountain Shares of Eli Lilly over the past 12 months. CMS' current policy for anti-amyloid Alzheimer's drugs is two-fold. For those approved under the Food and Drug Administration's accelerated approval pathway, patients need to also be participating in a clinical trial to obtain CMS coverage. For those with full FDA approval, the agency will pay if patients enroll in a registry that collects data on effectiveness and safety. The FDA issued accelerated approval to an anti-amyloid drug developed by Japanese drugmaker Eisai and Massachusetts-based partner Biogen (BIIB) in January. A decision on granting full approval to the drug, marketed as Leqembi, is expected in early July. The U.S. drug regulator has never granted full approval to any anti-amyloid treatments, which target abnormal clumps of the protein that have long been associated with the memory-robbing disease. The exact role that the accumulation of these amyloid plaques plays in the progression of Alzheimer's is not fully understood. Eli Lilly and other pharmaceutical peers believe clearing amyloid plaque can help slow the disease and have spent many years — and billions of dollars — studying drugs that aimed to do so. However, some medical experts are skeptical that targeting amyloid is an effective way to treat Alzheimer's. Past controversy surrounding the effectiveness of anti-amyloid drugs — including a different, earlier therapy co-developed by Biogen and Eisai — seemingly played a role in CMS' limited coverage policy, which was finalized in April 2022. Indianopolis-based Lilly has expressed optimism around the donanemab's efficacy, including pointing to the results of Leqembi's trials as reason for additional confidence. But unlike Leqembi, Eli Lilly may not be able to obtain accelerated approval for donanemab because an earlier trial did not meet an FDA threshold for patient enrollment. If phase three data is successful, that means full FDA approval, possibly in early 2024, would be necessary for donanemab to hit the market. Bottom line The comments Friday from Eli Lilly's Asay are encouraging and do appear to be a key factor moving the company's stock price higher. While the executive's confidence is notable, the most important development for donanemab in the next few months will be the actual phase three data. But keep in mind: Eli Lilly's pursuit of an effective Alzheimer's treatment is not the core of our investment thesis in the company. Still, a commercially successful Alzheimer's drug would be material for Eli Lilly and strengthen its long-term position. We share management's confidence around donanemab's potential efficacy. Mounjaro is the heart of our Eli Lilly investment case. The company's type 2 diabetes therapy should hopefully receive expanded approval from U.S. regulators to also treat obesity, which would expand its reach to larger group of patients and enable sales of the drug to hit another level. Jim Cramer has said Mounjaro could become the best-selling drug of all time . Eli Lilly has said it expects Mounjaro to obtain obesity approval from the FDA later this year. The company is set to report earnings Thursday before the market opens, and management may provide fresh commentary around its drug pipeline during the subsequent earnings call. Another catalyst looming for Eli Lilly shares is results from a study conducted by its competitor in the weight-loss category Novo Nordisk . The Danish pharmaceutical company is studying whether its obesity drug reduces the risk of heart disease and stroke. Analysts believe that positive results in that study, which are expected by mid-year, would help further establish a market for the kind of obesity drugs made by Novo Nordisk and Eli Lilly. (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. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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