What happened
Biopharmaceutical giant shares Eli Lilly (NYSE: LLY) jumped up to 20% in pre-market trading on Monday morning. The drugmaker’s stock is soaring higher in response to a positive clinical update for its experimental Alzheimer’s drug known as donanemab.
Donanemab is an experimental antibody developed to target a modified form of beta amyloid. In an intermediate trial, the drug reportedly produced a statistically significant slowdown in the decline in cognition and daily function in patients with early symptomatic Alzheimer’s disease, when compared to subjects who received a placebo.
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And
There are no treatments approved by the Food and Drug Administration that can slow cognitive decline in patients with Alzheimer’s disease. Thus, with an estimated 5.5 million Americans currently living with this deadly neurodegenerative disease, it is believed that the first drug approved for this indication has a real chance of generating annual sales in excess of $ 10 billion at its peak.
This quantum leap in Lilly’s assessment clearly reflects the enormous commercial potential of this untapped drug market. At one point in today’s pre-market negotiations, the American pharmaceutical company added an incredible $ 31.2 billion to its market capitalization.
What now
Are Lilly’s shares still a purchase after that strong jump? While these pharmaceutical stocks have been a big winner for investors in the past, this jaw-dropping increase in market capitalization is probably not justified. Dozens of similar drugs for Alzheimer’s disease have shown promise in initial and intermediate tests, only to fail in essential studies. In other words, investors are probably overreacting, perhaps wildly, to this data release.