I’m extremely reluctant to add any stocks to any portfolios right now. There’s just too much near-term uncertainty and we remain locked in the grip of a pushing Bear Market.
But I do want to upgrade my portfolios when possible to increase their future upside. So tomorrow September 28, I’ll be adding shares of drug maker Eli Lilly (LLY) to my Jubak Picks Portfolio; To make this an upgrade rather than an addition to this portfolio, I will also be selling shares of biotech Incyte (INCY) out of that portfolio.
In this paired trade I think I’m adding a comparatively stronger drug pipeline to my holdings.
In May Lilly got approval for its dual GIP and GLP-1 receptor agonist tirzepatide for use in treating Type 2 diabetes. (The drug will be marketed as Mounjaro. It is the first in its class and works by targeting two hormones tied to the control of blood sugar.) This will be a significant addition to what is already a very strong diabetes lineup at Lilly with Trulicity and Jardiance. Unlike traditional drugs, Lilly’s insulin drugs are very hard to copy with generics. (In addition the company has new weekly insulin in late-stage development.)
But the approval of Moujaro for diabetes could be just part of the potential for this drug. Lilly hopes to gain approval for the drug for use in treating obesity.
Analysts at UBS recently projected that Mounjaro could grow up to be the biggest drug ever with peak sales of an annual $25 billion. The Wall Street consensus puts peak Mounjaro sales at $15 billion. (AbbVie’s (ABBV) Humira is currently the drug with the highest annual sales: $21 billion in 2021.) The most recent figures, for the week ended September 16, show that prescriptions for Mounjaro accounted for 22% of all of Lilly’s diabetes medicines, according to SVB Securities. Mounjaro is an injectable drug: Lilly (along with Pfizer (PFE)) is working on a next-generation oral drug with Phase 2 trials likely to wrap up in late 2022.
The other big pipeline news for Lilly is the company’s Alzheimer’s drug, donanemab. Analysts at UBS called donanemab “the highest potential late-stage Alzheimer’s asset.” The speculation is that Lilly will get a bump from the next update from Biogen (BIIB) on its Alzheimer’s drug, lecanemab. Lecanemab is being developed in partnership with Japan’s Eisai (ESALY). Biogen hopes this drug will be more successful than the already approved drug Aduhelm. The Centers for Medicare and Medicaid Services declined to provide broad coverage for Aduhelm and its uptake so far has been limited. “For Lilly, we would expect the stock to trade up in the mid-single-digits percentage range if lecanemab succeeds, trade flattish if it fails but there is a positive trend, and trade down in the mid-single-digit percentage if it fails with no trend,” SVB Securities said in a report.
Lilly hopes to have the results of a study comparing donanemab and Aduhelm later this year and a Phase 3 study that aims to confirm the drug’s benefits in mid-2023.
I’m adding Eli Lilly to the Jubak Picks Portfolio with a target price of $346 a share. The stock pays a 1.27% dividend. The shares are up 12.39% for 2022 to date as of the close on September 26.
