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Why Wall Street shrugged at Lilly’s Alzheimer’s setback

On Thursday, Eli Lilly said that one of its most closely watched medicines, an experimental treatment for Alzheimer’s disease, had hit a setback, as the Food and Drug Administration decided not to grant it a so-called accelerated approval.

Typically, such a rejection would stoke concern from investors. But in the case of Lilly and its medicine, known as donanemab, the reaction on Wall Street has so far been relatively muted, with shares of the company down about 2% by Friday at noon.

According to analysts, that’s because the rejection, while somewhat surprising, won’t be what determines whether Lilly’s drug becomes a commercial success.

Rather, analysts are eagerly anticipating results from a large clinical trial of donanemab that should become available sometime between April and June. If positive, the trial would support a full FDA approval of the medicine, which would be the key to unlocking any significant sales.

“In the grand scheme of things, today’s [Lilly] news doesn’t change the fact that true opportunity for donanemab rests entirely on the upcoming [trial readout and full approval],” wrote Umer Raffat, of the investment firm Evercore ISI, in a Jan. 19 note to clients.

Lilly asked the FDA for accelerated approval based on data from a positive study in which about 130 participants with early Alzheimer’s were given donanemab. Compared to participants given a placebo, those on Lilly’s drug appeared to decline about 32% slower, as measured by a composite scale that evaluates both cognition and function.

Notably, the study’s design made it so that patients stopped receiving donanemab once they tested negative for amyloid — the protein the drug acts on, and which many researchers believe is integral to the development of Alzheimer’s.

Because of that design, a significant portion of the study participants given donanemab were on the drug for less than a year. And that, according to Lilly, proved to be an issue for the FDA, which has requested that the company provide data from at least 100 patients who received a minimum of 12 months of continued treatment with donanemab.

Analysts expect the FDA’s request could be met with safety data from that larger, ongoing trial of donanemab, which began in mid-2020 and has sought to enroll roughly 1,800 patients with early Alzheimer’s.

Some, though, don’t see much of a point to that. “We believe this will effectively eliminate donanemab’s prospects for accelerated approval,” Brian Skorney, an analyst at Baird, wrote in a note to clients, adding that “it would probably be in Lilly’s best interest to just focus on filing for full approval should the Phase 3 study be successful.”

Skorney also wrote that donanemab will need a “strong showing” in the larger study in order to be competitive against Leqembi, an Alzheimer’s drug from partners Eisai and Biogen.

Leqembi recently secured its own accelerated approval and is currently under review for full approval, supported by positive results from a Phase 3 trial.

Given the challenges faced by Biogen and Eisai’s earlier Alzheimer’s drug, Aduhelm, analysts see full approvals as essential for amyloid-targeting therapies like Leqembi and donanemab to be viable commercial products. Medicare, the government insurance program expected to cover these drugs for the bulk of eligible patients, has set up a highly restrictive policy around amyloid therapies approved via the accelerated pathway.

To Paul Matteis, an analyst at Stifel, the FDA’s decision against accelerated approval “comes in the backdrop of investors largely giving [Lilly the] benefit of the doubt, or even putting a halo effect around donanemab as potentially the best-in-class drug in the space.”

Matteis wrote, too, that the rejection could make some questions around donanemab’s safety, dosing and overall profile compared to Leqembi “more salient with the investor community.”