Pharmaceutical company Eli Lilly (LLY 3.67%) scored a major approval three months ago with its state-of-the-art diabetes drug, Mounjaro. It is too early to tell whether the drug will boost Lilly's sagging revenue, but it does have enormous potential in several huge markets. Early results suggest that the drug could help the company capture crucial share in these key segments.
Better diabetes drug
On May 13, the Food and Drug Administration approved Mounjaro's weekly injection for adults with type 2 diabetes. The company's clinical trials showed that Moujaro lowered hemoglobin A1C, a measure of blood sugar control, by 1.6% more than a placebo and 0.5% more than competitor Novo Nordisk's semaglutide. Mounjaro uses a first-in-class dual action mechanism involving two hormones necessary for blood sugar control.
Effectively, this means that Mounjaro is a more advanced version of the company's current top-selling blockbuster Trulicity. Both drugs act in the GLP-1 hormone pathway, but Mounjaro's second component adds another layer of protection to stabilize blood sugar levels.
Eli Lilly hopes that Mounjaro will take the baton from Trulicity, and extend the company's dominance in the GLP-1 space. Trulicity raked in $1.9 billion in sales in the second quarter, but will see its patents expire at the end of the decade.
Lilly didn't report sales for Mounjaro in the earnings report since the drug only launched late last quarter. However, management noted that Mounjaro is off to a great start and claimed that doctors are prescribing the drug to one out of five new patients as of July. Impressively, management claims that the drug has single-handedly increased Lilly's market share of new prescriptions in its drug class by 12%.
More potential in weight loss
Type 2 diabetes treatment is certainly a huge and growing market. More than 30 million Americans have type 2 diabetes, and many more exhibit signs of pre-diabetes. As prevalent as diabetes is, however, the obesity market presents an even greater opportunity. The obesity market is estimated to be almost 50% larger than that of diabetes, and only 2% of these potential patients are currently being treated.
Lilly hopes to compete directly in obesity treatment with Mounjaro. In the same clinical trials, the company found that Mounjaro helped patients lose weight. The treatment countered the weight gain caused by insulin, and patients receiving Mounjaro lost 23 pounds more than those receiving a placebo and 12 pounds more than those receiving Novo Nordisk's rival treatment, semaglutide.
One caveat is that the study compared the maximum dosage of Mounjaro to a low level of semaglutide. The 1 mg semaglutide dose was the highest level approved at the time the study was initiated, but is well below the 2.4 mg dosage of Novo Nordisk's Wegovy, approved last summer for weight management. Mounjaro might lose its advantage when compared against this higher semaglutide dose.
Lilly has studies underway to support an indication for weight management. The drug already has a promising preliminary readout from its first pivotal trial, and has five additional studies expected to complete by the first half of next year. Lilly is also planning a direct head-to-head comparison of Mounjaro against the higher semaglutide dose, in the hope of displacing Novo Nordisk's leading position in the weight management market. A regulatory submission next year seems likely, and its approval would dramatically expand Mounjaro's total addressable market.
NYSE: LLY
Key Data Points
Mounjaro needs to realize its full potential
Lilly announced disappointing second-quarter results, generating $6.5 billion in quarterly sales, a 4% year-over-year decline. Volumes generally increased in most areas of the world, but prices universally decreased. The loss of Cialis rights in China led to a substantial drop in sales from that country, while the patent expiration of lung cancer drug Alimta also had a strong negative effect on revenue across many regions. Management sees this as a short-term setback and remains optimistic about the company's long-term growth prospects.
The company certainly has other new candidates under review, which include drugs for Alzheimer's, inflammatory bowel disease, eczema, and mantle cell lymphoma. But Mounjaro is a cornerstone of Lilly's strategic growth plan, and the drug needs strong results to compete against first-mover Novo Nordisk in weight management. Until Mounjaro gains traction in the obesity market, its growth in the diabetes market might actually cost Lilly some of Trulicity's sales.
The stock price dropped following the earnings release, but Lilly's valuation remains pricey with a trailing price-to-earnings ratio of 49. Lilly has been beating the bear market so far this year, but it might be worth considering other pharmaceuticals with more appealing valuations right now.
