Eli Lilly Just Succeeded Where Others Failed, but Does It Matter for the Stock?

In science and in life, there’s a special prestige that comes with being the first person or group to crack a previously intractable problem by using a cunning approach. Believe it or not, bragging rights matter to massive pharma players like Eli Lilly (LLY 0.61%), too. The question is, should such attainments matter to investors if the financial benefits from them are ambiguous?

This isn’t just an academic question. A few weeks ago, Lilly showed some proof that one of its clinical programs did what others couldn’t. Let’s consider how much that success could impact the stock, and when to see if it’s worth considering as a factor in your investing decision.

This medical achievement could echo through history, but will it pay off?

On Jan. 23, Eli Lilly reported preliminary data from a phase 1/2 clinical trial to see if an experimental gene therapy called AK-OTOF is capable of reversing total hearing loss caused by detrimental mutations in the otoferlin (OTOF) gene. Per the data, the answer to that question appears to be a resounding yes.

The very first patient to be dosed with AK-OTOF in the trial (which studied a cohort of 14 patients) was an 11-year-old who had experienced hearing loss for their entire life. Within a month of being dosed, the child was able to hear for the first time, and apparently, to a degree that approximates normal hearing ranges. There weren’t any major hiccups nor severe side effects of the treatment, and it is possible that the benefits will continue to accumulate over time, though it is unclear if the effects will be permanent. It’s difficult to express how significant of a scientific, medical, and humanitarian achievement these early results are.

In particular, they’re thrilling for investors because they mean that Eli Lilly looks like it’s making headway in a niche that has been historically intractable for biopharma businesses. In fact, whiffs with programs intended to treat hearing loss — with gene therapy or otherwise — have led to the demise, acquisition, or deep decline in value of at least three biotechs in the last three years. In short, Eli Lilly’s research and development capabilities enabled it to avoid the same fate with the program, at least so far. There isn’t much reason to think that the therapeutic modality it developed for the program will be very useful elsewhere, but the fact that it was able to innovate so effectively is a major point in favor of the organization as a whole. And, if it eventually rakes in a lot of sales, it’ll have more resources to funnel to further R&D work.

The latest data are just one potential future catalyst out of many

The AK-OTOF study is scheduled to continue through almost the end of 2028. After that, assuming there aren’t any bumps along the way, it’ll proceed to a phase 3 trial, which might take a similarly long period. The program already has an Orphan Drug Designation as well as a Rare Pediatric Disease Designation from the Food and Drug Administration (FDA), so it is probable that regulators will be receptive to Eli Lilly’s attempts to advance it.

But if this candidate treatment ever makes it to commercialization, it probably won’t be until the early 2030s. In terms of the financial impacts, consider that only around 200,000 people have OTOF-mediated hearing loss. If the candidate were priced at a level common to other curative or near-curative gene therapies for hereditary conditions, it could be around $1 million per dose. At that price point, there could be an addressable market as large as $200 billion. For a company as large as Eli Lilly, with a trailing 12-month (TTM) top line of $32 billion, capturing even a small portion of the potential revenue could thus be an enormous boon. Still, keep in mind that there is no guarantee that it will actually charge such a high price, nor any guarantee that insurers or individuals would be willing to pay it.

At this early stage, investors should not be looking to the AK-OTOF program to drive the future of Eli Lilly’s growth despite it being a testament to the company’s top-notch technical chops. There are more clinical trials to do before counting this program as being in the bag. Instead, consider that it is more likely to be able to tackle a similarly challenging project than many of its less innovative peers.

There are still plenty of tangible growth drivers in play, of course. The most important of those drivers is the sales of the medicines called Zepbound and Mounjaro, which respectively treat obesity and type 2 diabetes. Given that both drugs are selling so quickly that supplies are in a state of shortage in the U.S., the prospects for the stock are thus sunny, and the recent success with AK-OTOF is best considered as a cherry on top.