We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
How to Play LLY Stock as Zepbound Beats NVO's Wegovy in Obesity Study
Read MoreHide Full Article
Eli Lilly and Company (LLY - Free Report) announced earlier this week that its popular obesity drug, Zepbound (tirzepatide) outperformed rival Novo Nordisk’s (NVO - Free Report) Wegovy (semaglutide) in a weight-loss head-to-head study.
In the study, Zepbound showed superior results across the primary endpoint and all five key secondary endpoints, and its safety profile was consistent with previous studies.
The latest Zepbound data bodes well for Lilly. It can help drive market share and potentially establish the drug as the new standard for obesity medications.
Lilly markets tirzepatide as Zepbound for obesity and as Mounjaro for type II diabetes. Though demand for the two drugs remains massive, Mounjaro and Zepbound’s sales were hurt due to inventory issues in the third quarter. This led the shares of the company to drop after third-quarter results after a powerful first-half performance. However, it looks like the stock is back on investors’ radar with the latest positive Zepbound data.
Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock after the latest news.
Mounjaro & Zepbound: Key Top-Line Drivers for Lilly
Tirzepatide is a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA). The GLP-1 segment is a very important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity.
Despite a short time on the market, Mounjaro and Zepbound have become key top-line drivers for Lilly in 2024, with demand rising rapidly. Mounjaro and Zepbound generated sales of $11.0 billion in the first three quarters of 2024, accounting for around 45% of the company’s total revenues.
However, the quarter-over-quarter growth of Zepbound and Mounjaro in 2024 has been impacted by supply and channel dynamics. In the second quarter, increased supply led to higher shipments, which allowed the company to fulfill all backorders for its wholesales. However, channel inventory decreased at wholesalers in the third quarter, which hurt sales of the drugs. It is difficult to predict the demand/inventory dynamics of these products with the potential for lumpiness in channel stocking.
Efforts to Drive LLY’s Mounjaro & Zepbound Sales
The company is balancing demand and supply of Mounjaro and Zepbound and the launch of the drugs in international markets. Lilly expects to increase demand activities for Mounjaro and Zepbound in the fourth quarter, which should benefit sales in 2025. The launch of Mounjaro in new international markets is expected to contribute to the drug’s sales in the fourth quarter. On Thursday, Lilly announced a $3 billion expansion plan for its manufacturing facility in Wisconsin, which the company acquired in April to meet the growing demand of Mounjaro and Zepbound.
Last month, President Biden proposed that Medicare and Medicaid should cover the cost of obesity treatments. Under the existing law, Medicare is barred from covering weight-loss drugs like Zepbound and Wegovy. Medicare and Medicaid cover these drugs only if they are prescribed to treat some disease like diabetes or to reduce cardiovascular risks. The new proposal, if passed, will significantly expand access for Zepbound and Wegovy. However, it should be noted that the proposal is still in the preliminary stage and the Trump administration will have to finalize it before it can come into effect.
Tirzepatide is also being developed for other indications like obstructive sleep apnea, heart failure with preserved ejection fraction, cardiovascular risks and metabolic dysfunction-associated steatohepatitis. Approval for these expanded indications can further boost sales. Wegovy, however, has an edge over Zepbound in this regard, as it is already approved to reduce cardiovascular risks.
LLY’s New Drugs & Pipeline Success
Other than Mounjaro and Zepbound, Lilly has gained approvals for some other new drugs in the past couple of years. These include Omvoh for ulcerative colitis and BTK inhibitor Jaypirca for mantle cell lymphoma and chronic lymphocytic leukemia and Kisunla (donanemab) for early symptomatic Alzheimer's disease. All these new drugs should continue to support Lilly’s top-line growth in future quarters.
Competition Heating Up in Obesity Space
The obesity market is heating up and is expected to expand to $100 billion by 2030, according to data from Goldman Sachs. Lilly and Novo are presently dominating the market.
Lilly is investing broadly in obesity and has 11 new molecules currently in clinical development. These include two late-stage candidates, orforglipron, an oral GLP-1 small molecule and retatrutide, a GGG tri-agonist and some mid-stage candidates, bimagrumab, eloralintide and mazdutide. Several phase III data readouts are expected in 2025.
Several companies like Amgen (AMGN - Free Report) and Viking Therapeutics (VKTX - Free Report) are also making rapid progress in the development of GLP-1-based candidates in their clinical pipeline.
Last month, Amgen announced 52-week top-line data from a phase II study on MariTide, its GLP-1 therapy for obesity. The data showed that MariTide led to approximately 20% average weight loss over 52 weeks without reaching a weight loss plateau. However, the stock took a hit after the results were announced, as the weight loss was below investor expectations.
AMGN and VKTX’s products can pose strong competition to Mounjaro/Zepbound and Ozempic/Wegovy in the future.
LLY’s Stock, Valuation and Estimates
Lilly’s stock has risen 41.5% so far this year compared with an increase of 8.9% for the industry. The stock has also outperformed the sector as well as the S&P 500, as seen in the chart below.
LLY Stock Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
The stock is trading at a premium to the industry, as seen in the chart below.
LLY Stock Valuation
Image Source: Zacks Investment Research
Estimates for Lilly’s 2024 earnings have declined from $13.50 to $13.19 per share over the past 30 days. For 2025, earnings estimates have declined from $23.71 to $23.63 per share over the same timeframe.
LLY Estimate Movement
Image Source: Zacks Investment Research
Stay Invested in LLY Stock
The stupendous success of Mounjaro and Zepbound has made Lilly the largest drugmaker with a market cap of more than $780 billion. Lilly’s stock has gone up by 590% in the past five years, mainly due to its successful new drug launches, particularly Mounjaro and Zepbound, and its solid pipeline potential. Lilly’s revenue growth is being driven by higher demand for Mounjaro, Zepbound, Verzenio and others, making up for the decline in sales from Trulicity.
However, the disappointing sales of Mounjaro and Zepbound in the third quarter have created a bearish sentiment around the stock. It has brought up new questions about whether the sky-high expectations for Mounjaro and Zepbound are justified.
We believe that over time, the supply issues for Mounjaro and Zepbound should be resolved as the company increases production capacity. Also, Lilly looks well placed to get approval for several new drugs and label expansions for marketed drugs, including Mounjaro and Zepbound, in the next few years.
Image: Bigstock
How to Play LLY Stock as Zepbound Beats NVO's Wegovy in Obesity Study
Eli Lilly and Company (LLY - Free Report) announced earlier this week that its popular obesity drug, Zepbound (tirzepatide) outperformed rival Novo Nordisk’s (NVO - Free Report) Wegovy (semaglutide) in a weight-loss head-to-head study.
In the phase IIIb 72-week study, Zepbound led to an average weight loss of 20.2% of body weight in obese or overweight adults, compared to 13.7% for Wegovy, representing a 47% greater relative weight loss for Zepbound users.
In the study, Zepbound showed superior results across the primary endpoint and all five key secondary endpoints, and its safety profile was consistent with previous studies.
The latest Zepbound data bodes well for Lilly. It can help drive market share and potentially establish the drug as the new standard for obesity medications.
Lilly markets tirzepatide as Zepbound for obesity and as Mounjaro for type II diabetes. Though demand for the two drugs remains massive, Mounjaro and Zepbound’s sales were hurt due to inventory issues in the third quarter. This led the shares of the company to drop after third-quarter results after a powerful first-half performance. However, it looks like the stock is back on investors’ radar with the latest positive Zepbound data.
Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock after the latest news.
Mounjaro & Zepbound: Key Top-Line Drivers for Lilly
Tirzepatide is a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA). The GLP-1 segment is a very important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity.
Despite a short time on the market, Mounjaro and Zepbound have become key top-line drivers for Lilly in 2024, with demand rising rapidly. Mounjaro and Zepbound generated sales of $11.0 billion in the first three quarters of 2024, accounting for around 45% of the company’s total revenues.
However, the quarter-over-quarter growth of Zepbound and Mounjaro in 2024 has been impacted by supply and channel dynamics. In the second quarter, increased supply led to higher shipments, which allowed the company to fulfill all backorders for its wholesales. However, channel inventory decreased at wholesalers in the third quarter, which hurt sales of the drugs. It is difficult to predict the demand/inventory dynamics of these products with the potential for lumpiness in channel stocking.
Efforts to Drive LLY’s Mounjaro & Zepbound Sales
The company is balancing demand and supply of Mounjaro and Zepbound and the launch of the drugs in international markets. Lilly expects to increase demand activities for Mounjaro and Zepbound in the fourth quarter, which should benefit sales in 2025. The launch of Mounjaro in new international markets is expected to contribute to the drug’s sales in the fourth quarter. On Thursday, Lilly announced a $3 billion expansion plan for its manufacturing facility in Wisconsin, which the company acquired in April to meet the growing demand of Mounjaro and Zepbound.
Last month, President Biden proposed that Medicare and Medicaid should cover the cost of obesity treatments. Under the existing law, Medicare is barred from covering weight-loss drugs like Zepbound and Wegovy. Medicare and Medicaid cover these drugs only if they are prescribed to treat some disease like diabetes or to reduce cardiovascular risks. The new proposal, if passed, will significantly expand access for Zepbound and Wegovy. However, it should be noted that the proposal is still in the preliminary stage and the Trump administration will have to finalize it before it can come into effect.
Tirzepatide is also being developed for other indications like obstructive sleep apnea, heart failure with preserved ejection fraction, cardiovascular risks and metabolic dysfunction-associated steatohepatitis. Approval for these expanded indications can further boost sales. Wegovy, however, has an edge over Zepbound in this regard, as it is already approved to reduce cardiovascular risks.
LLY’s New Drugs & Pipeline Success
Other than Mounjaro and Zepbound, Lilly has gained approvals for some other new drugs in the past couple of years. These include Omvoh for ulcerative colitis and BTK inhibitor Jaypirca for mantle cell lymphoma and chronic lymphocytic leukemia and Kisunla (donanemab) for early symptomatic Alzheimer's disease. All these new drugs should continue to support Lilly’s top-line growth in future quarters.
Competition Heating Up in Obesity Space
The obesity market is heating up and is expected to expand to $100 billion by 2030, according to data from Goldman Sachs. Lilly and Novo are presently dominating the market.
Lilly is investing broadly in obesity and has 11 new molecules currently in clinical development. These include two late-stage candidates, orforglipron, an oral GLP-1 small molecule and retatrutide, a GGG tri-agonist and some mid-stage candidates, bimagrumab, eloralintide and mazdutide. Several phase III data readouts are expected in 2025.
Several companies like Amgen (AMGN - Free Report) and Viking Therapeutics (VKTX - Free Report) are also making rapid progress in the development of GLP-1-based candidates in their clinical pipeline.
Last month, Amgen announced 52-week top-line data from a phase II study on MariTide, its GLP-1 therapy for obesity. The data showed that MariTide led to approximately 20% average weight loss over 52 weeks without reaching a weight loss plateau. However, the stock took a hit after the results were announced, as the weight loss was below investor expectations.
AMGN and VKTX’s products can pose strong competition to Mounjaro/Zepbound and Ozempic/Wegovy in the future.
LLY’s Stock, Valuation and Estimates
Lilly’s stock has risen 41.5% so far this year compared with an increase of 8.9% for the industry. The stock has also outperformed the sector as well as the S&P 500, as seen in the chart below.
LLY Stock Outperforms Industry, Sector & S&P 500
The stock is trading at a premium to the industry, as seen in the chart below.
LLY Stock Valuation
Estimates for Lilly’s 2024 earnings have declined from $13.50 to $13.19 per share over the past 30 days. For 2025, earnings estimates have declined from $23.71 to $23.63 per share over the same timeframe.
LLY Estimate Movement
Stay Invested in LLY Stock
The stupendous success of Mounjaro and Zepbound has made Lilly the largest drugmaker with a market cap of more than $780 billion. Lilly’s stock has gone up by 590% in the past five years, mainly due to its successful new drug launches, particularly Mounjaro and Zepbound, and its solid pipeline potential. Lilly’s revenue growth is being driven by higher demand for Mounjaro, Zepbound, Verzenio and others, making up for the decline in sales from Trulicity.
However, the disappointing sales of Mounjaro and Zepbound in the third quarter have created a bearish sentiment around the stock. It has brought up new questions about whether the sky-high expectations for Mounjaro and Zepbound are justified.
We believe that over time, the supply issues for Mounjaro and Zepbound should be resolved as the company increases production capacity. Also, Lilly looks well placed to get approval for several new drugs and label expansions for marketed drugs, including Mounjaro and Zepbound, in the next few years.
Though the stock looks quite expensive, we suggest investors who own this Zacks Rank #3 (Hold) company to hold the stock as it still has robust growth prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.