June 21, 2024

The Art of Investment

Mastering the Stock Market Strategies

These 2 No-Brainer Growth Stocks Are Breaking New Ground

3 min read

The future keeps getting brighter for these companies.

Drugmakers outside the biosimilar or generic-medicine market must constantly innovate to be successful over long periods. Some are better at it than others.

Eli Lilly (LLY -2.02%) and Regeneron Pharmaceuticals (REGN -1.05%) have historically been in the more successful group. That’s why they are among the most prominent players in the game.

Can Eli Lilly and Regeneron keep this up? Recent developments suggest that the answer is yes. Both companies have announced early positive results for potential groundbreaking therapies for a difficult target: hearing loss. Let’s look deeper into these results and their significance for investors.

No challenge is too big

Lilly and Regeneron are targeting deafness caused by variations in the otoferlin gene, which is crucial for proper hearing. Children who suffer from deafness due to this defect can sometimes rely on hearing aids, but approved therapies that can restore hearing due to mutations in the otoferlin gene do not yet exist.

In January, Eli Lilly shared early data from a phase 1/2 clinical trial for a gene therapy designed to do exactly that, called AK-OTOF. The pharmaceutical company reported that an 11-year-old patient, deaf since birth, was administered the medicine and experienced hearing restoration within 30 days of receiving treatment with AK-OTOF.

Though that’s just data from a single patient, it is already quite an impressive feat. Regeneron’s results are also noteworthy. The biotech’s candidate, also a gene therapy, is called DB-OTO. Regeneron is running a phase 1/2 study for this investigational medicine.

It released results from two patients, one dosed at 11 months of age and the other at four years old. The former experienced hearing restoration within 24 months, while the latter is seeing hearing improvements at the six-week mark.

These results suggest that Regeneron and Eli Lilly have a somewhat decent shot in this market, although there is still a long way to go.

Why you should invest in these stocks

Should you invest in Eli Lilly and Regeneron because of their work in curing deafness? Probably not. Since these are still early-stage clinical trials, a lot could happen in the coming months and years to derail their plans. Perhaps efficacy data won’t hold up. Perhaps safety issues will arise.

However, these developments again show these two leaders’ innovative potential, a better reason to invest in these stocks.

The two are currently benefiting from earlier successes. In the first quarter, Eli Lilly’s revenue came in at $8.8 billion, 26% higher than the year-ago period.

Unsurprisingly, Zepbound and Mounjaro were the stars of the show. These two therapies, approved for obesity and diabetes, respectively, both have the same active ingredient, called tirzepatide.

Zepbound was approved in November, while Mounjaro first hit the market in mid-2022 and is already the company’s top-selling product. Both medicines should see their sales grow by leaps and bounds for years to come, driving Lilly’s revenue ever higher.

The company’s lineup also features other growth drivers, such as cancer medicine Verzenio. Lilly’s pipeline is solid, too. It could soon earn approval for donanemab, a potential Alzheimer’s disease therapy. The stock has crushed the market in recent years for a good reason. There is plenty of upside left.

Turning to Regeneron, the company’s two main growth drivers, Eylea and Dupixent, can still generate sales. Although the company’s revenue declined by 1% year over year to $3.15 billion in the first quarter, that was due to its coronavirus-related sales dropping. Excluding its COVID-19 antibody, Regeneron’s revenue increased by 7%.

Eylea treats wet age-related macular degeneration. Last year, Regeneron earned approval for a high-dose formulation of the medicine that requires fewer annual doses and does not sacrifice efficacy.

Meanwhile, Dupixent, a medicine for eczema, is racing toward a major approval in treating COPD, one that should add well over $1 billion in sales to the medicine’s total.

Regeneron’s pipeline is also bright. The company is looking to ramp up its oncology unit and is awaiting approval for linvoseltamab in treating multiple myeloma. It also has what it takes to beat the market over the long run. The biotech’s recent pullback following a regulatory setback only gives investors an even more attractive entry point.

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