Watch out, Ozempic and Wegovy. You could have a formidable new rival in the weight-loss market soon.

Eli Lilly and Company (LLY -0.64%) announced overwhelmingly positive results on Thursday from the Surmount-2 phase 3 study evaluating tirzepatide (marketed as Mounjaro in treating type 2 diabetes) in helping individuals lose weight. This wasn't the first time the drug appeared to work well in achieving weight loss. Lilly had previously reported encouraging results from the Surmount-1 phase 3 study.  

Is the pharma stock a no-brainer buy after this latest big win?

Racing toward likely approval

Lilly reported that participants who received a 15 mg dose of tirzepatide in the Surmount-2 study with obesity or overweight and type 2 diabetes achieved an average weight reduction of 15.7% of body weight (34.4 pounds). Patients taking the 10 mg dose of the drug lost an average of 13.4% of their body weight (29.8 pounds).

Jeff Emmick, Lilly's senior vice president of product development, noted that this level of mean weight reduction hasn't been seen in late-stage clinical studies of other drugs for obesity or overweight and type 2 diabetes. He's right. 

Even better, tirzepatide's safety profile looked good. Although there were some adverse events in the Surmount-2 study, they were similar to previous clinical trials for the drug. Overall, tirzepatide's safety profile matches up relatively well with Novo Nordisk's Ozempic and Wegovy.

Lilly expects to finish its U.S. submission for tirzepatide as a treatment for weight loss within the next few weeks. The company intends to use a priority review voucher to speed up the approval process. The U.S. Food and Drug Administration (FDA) could approve the drug as early as late 2023. 

It is uncertain whether or not it will be marketed as Mounjaro in the weight-loss indication if it's approved. Mike Mason, executive vice president and Lilly Diabetes president, said in the Q1 conference call that there are "pros and cons" to going with separate brand names for diabetes and obesity, as Novo Nordisk did with Ozempic and Wegovy.

Analysts at UBS think that Mounjaro (or whatever other brand name might be used for obesity) could generate peak annual sales of $25 billion. The average Wall Street target is closer to $15 billion. Regardless, Lilly could have a massive winner on its hands. 

The bigger picture

Mounjaro isn't Lilly's only growth driver. The company's current biggest moneymaker, Trulicity, continues to pick up momentum. Lilly reported sales for the drug jumped 14% year over year to nearly $2 billion in its Q1 earnings update.

Lilly has other drugs that are delivering even more impressive sales growth. Jardiance raked in nearly $578 million in Q1, up 38% year over year. Sales for cancer drug Verzenio skyrocketed 60% to almost $751 million.

The company's pipeline features several promising programs, as well. In particular, Lilly has high hopes for Alzheimer's disease drug donanemab and atopic dermatitis drug lebrikizumab.

But there are also some negatives. Lilly made nearly $1.5 billion in the first quarter of 2022 from its COVID-19 antibodies. All of that revenue has now disappeared.

Other products are losing steam, as well. Sales of insulin product Humalog sank 25% year over year in Q1 to around $461 million. Autoimmune disease drug Olumiant also saw its sales slide 10% lower to roughly $229 million.

In addition, Lilly ran into a regulatory roadblock earlier this month for one of its promising pipeline candidates. The FDA turned down approval of mirikizumab in treating ulcerative colitis. However, the rejection related to the proposed manufacturing of the drug. Lilly still expects to ultimately win regulatory approval for mirikizumab.

A no-brainer buy?

Is Eli Lilly stock a no-brainer buy with the huge potential for Mounjaro? I wouldn't go that far.

The main issue is that a lot of the company's growth prospects are already baked into the share price. Lilly currently trades at more than 42 times forward earnings. 

However, I do expect that Lilly will achieve tremendous success with Moujaro in the obesity indication. I also wouldn't be surprised if the company's other programs at the threshold of regulatory approval do well in the marketplace, assuming they are approved. 

There's more risk with buying Lilly than you might see at first glance. But I nonetheless think the stock is a buy -- even if it's not a no-brainer buy.