FDA approval of Eli Lilly's Alzheimer's drug reinforces our choice to not take income
Every weekday, CNBC Investing Club with Jim Cramer publishes the Homestretch — an actionable afternoon update, just in time for the final hour of trading on Wall Street. Markets Rally: Stocks rose across the board Tuesday afternoon, led by the Nasdaq Composite, which rose 0.7% and was on track for two straight record closes. The S&P 500, which had been near the zero line earlier in the session, rose about 0.4%. The Dow Jones Industrial Average pared earlier losses, gaining about 100 points, or 0.25%. Big news for Lilly: The Food and Drug Administration on Tuesday approved Eli Lilly's Alzheimer's drug donanemab. The drug is sold under the brand name Kisunla and costs $32,000 for a 12-month course. On the news, Eli Lilly shares came off session lows. The stock was under more pressure earlier in the day as President Joe Biden and Sen. Bernie Sanders of Vermont criticized the cost of the company's fast-growing weight-loss drug Zepbound. Kisunla is not expected to be a significant growth driver for Eli Lilly this year or through 2025, especially considering the billions in projected sales for Zepbound and its sister drug Mounjaro, which has the same active ingredient, tirzepatide, and is used to treat type 2 diabetes. Still, we view the FDA approval of Lilly's Alzheimer's drug as a key catalyst for the company to reach a trillion-dollar market value. According to FactSet, analysts forecast sales of $477 million for Kisunla in 2025 and around $1 billion in 2026. And Lilly is already working on next-generation treatments to follow on from Kisunla. Lilly had hoped to approve Kisunla by the end of March, but the timeline was pushed back after the FDA unexpectedly convened an advisory panel to take a closer look at safety and effectiveness data. The 11-member panel finally met in June and voted unanimously in favor of the drug. Tuesday's approval represents a significant breakthrough in Eli Lilly's decades-long, costly quest to find a treatment for Alzheimer's, a memory-robbing disease that afflicts millions of Americans. Before Kisunla, Lilly had been unsuccessful with several other experimental drugs, most notably solanezumab, which failed a high-profile late-stage trial in 2016. The company officially halted development of that drug last year. Lilly's Kisunla is the second treatment of its kind to receive full FDA approval, following Leqembi, co-developed by Biogen and Eiasi, in July 2023. The drugs similarly aim to slow disease progression by reducing the formation of so-called amyloid plaques in a patient's brain. These abnormal clumps of the amyloid protein have long been an indicator of Alzheimer's disease, though their exact role in the disease is unknown. Both drugs are given intravenously. Leqembi's rollout has been slower than expected as the U.S. health care system worked to build the infrastructure to support this new class of treatment. Patients must first see a doctor who can determine if they are a candidate for the anti-amyloid drug. Then, intravenous infusions to administer the drug must be scheduled every two weeks, along with regular MRI scans to monitor side effects, which include brain swelling and bleeding. Leqembi is expensive, at more than $26,000 a year, so securing insurance reimbursement is another key piece of the treatment puzzle. Biogen said in late April that Leqembi adoption is growing, and executives offered encouraging comments that hospital systems are better prepared to treat patients with the drug. Lillly's entry into the Alzheimer's market could further accelerate that progress, said Alisha Alaimo, head of Biogen's North American business. “In an area like this, where the medical community has done so much, having a competitor or another option is always a good thing,” Alaimo said at a Goldman Sachs healthcare conference on June 12. “That's a good thing for doctors. That's a good thing for patients. But more importantly, with Lilly in the game, the market will move faster.” We had already considered taking profits on Eli Lilly on Tuesday, but ultimately decided against it, since increased political risk from Washington in the short term does nothing to change the pharmaceutical giant's long-term trajectory. We've been saying for years that its growth prospects are the best among large-cap peers, with Mounjaro and Zepbound as anchors, and now Kisunla can officially be considered part of history. Corona on the schedule: Club holding Constellation Brands is expected to report its quarterly results on Wednesday before the market opens. The post-earnings conference call is set for 10:30 a.m. ET. Although there were some concerns that bad weather around Memorial Day could affect Constellation's quarter, several analysts remain bullish on the stock ahead of the earnings release. In a note to clients on Friday, Goldman Sachs said investor expectations were low due to weaker trends across the industry. But analysts said the parent company of Corona and Modelo is poised for a boost in sales and earnings based on feedback from its sales and retail contacts. According to LSEG estimates, Wall Street expects the company to earn $3.46 per share on revenue of $2.67 billion. We'll also be looking for commentary on how summer is shaping up for major Mexican beer brands and whether there's a rebound in Constellation's flagging wine and spirits business. Up next: The U.S. stock market closes early at 1 p.m. ET on Wednesday ahead of the Fourth of July holiday. It's closed Thursday for the holiday. Before the break, though, we'll take a look at June private wage growth via ADP's employment survey on Wednesday morning, as well as weekly initial jobless claims. (A full list of stocks in Jim Cramer's Charitable Trust can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you'll 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. When Jim has discussed a stock on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR OBLIGATION IS PROVIDED BY OR CREATED BY RECEIVING INFORMATION RELATED TO INVESTING CLUB. 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Every weekday, CNBC Investing Club with Jim Cramer publishes the Homestretch – an actionable afternoon update, just in time for the final hour of trading on Wall Street.
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