With cold temperatures limiting outdoor activity and scarcely any sunshine to soak up, it's natural to feel a bit sluggish during the depths of winter, and, speaking from experience, it's easy to pack on a few extra pounds during the season. In that regard, we're not too different from critters like squirrels, who bulk up, stash snacks, and spend a lot of time lazing around -- or hibernating -- to conserve their energy during the cold months.
Indeed, it turns out that hibernation is a physiological process with a lot of implications for humans seeking to maintain a healthy weight. It therefore makes sense that Eli Lilly (LLY 0.11%), the maker of the popular diabetes and weight-loss medication tirzepatide, is teaming up with privately held biotech Fauna Bio to see if there might be a new path to weight-loss treatments to be found in the genetics of hibernation in squirrels and other creatures.
Investors may be surprised to learn just how serious the big pharma company is about finding leads for new anti-obesity drugs in sleepy squirrels.
So just what exactly can one learn from squirrels?
Right now, Eli Lilly's metabolic disease portfolio has one rising star -- tirzepatide -- marketed with two names, depending on which indication it's prescribed for: Mounjaro for type 2 diabetes, and Zepbound for obesity.
Mounjaro brought in more than $1.4 billion in revenue in Q3 alone, and demand remains white-hot. Zepbound was only approved as a weight-loss treatment in early November, so there isn't a full quarter's worth of sales data available yet, but based on how the company is working hard to expand its manufacturing capacity for the drug, it is likely to be a blockbuster as well.
Nonetheless, Eli Lilly will eventually lose exclusivity protection for tirzepatide, and generic versions will start to erode its market share, so it can't stop innovating if it wants to retain its competitive position. And that's where its collaboration with Fauna Bio comes in. Fauna Bio is a drug-discovery biotech unlike any other, blending artificial intelligence (AI) with a unique corpus of data.
Its AI platform for drug discovery is called Convergence, and it sits atop an abundance of genomic data derived from 452 species of mammals. In particular, one component of that rich dataset describes the genetic and physiological characteristics of 22 different tissues of the thirteen-lined ground squirrel across more than a dozen time points. These ground squirrels have long been an animal model of particular interest for the biotech. Its researchers have published numerous papers on the genetic basis of their hibernation habits in prestigious scientific journals like Nature.
The idea is that by identifying the genetic features that regulate the processes of entering hibernation and emerging from it for those ground squirrels, it may be possible to identify molecular switches in humans that are responsible for driving weight gain and obesity, or perhaps those that drive weight loss directly.
Then, it could be possible to develop treatments that interact with the relevant targets so as to help people control their weight by shedding excess pounds, maybe in an opposite manner as the squirrels do when bulking up for the winter, or potentially in the same manner as the squirrels use when exiting hibernation in the spring.
If such a therapy were invented, it might also be useful to treat other metabolic disorders like diabetes as well as some forms of heart disease. It's the pluripotentiality of the research that makes working with Fauna Bio so appealing to Eli Lilly.
This is a smart move in the bigger picture
The pharma juggernaut is thus making an equity investment in Fauna Bio and an up-front payment of undisclosed size, as well as committing to paying it royalties on any medicines resulting from the collaboration and as much as $494 million in milestone payments. The partnership will span years, and pursue the development of multiple undisclosed drug targets, most or all of which are likely under the umbrella of obesity and metabolic disorders.
Given that Eli Lilly had around $2.5 billion in cash, equivalents, and short-term investments on the books as of the end of the third quarter, and a trailing-12-month cash outflow of $165 million, it's safe to say that the deal is yet another significant play to conquer the market for obesity medicines.
Eli Lilly's commitment to Fauna Bio probably won't lead to any marketable new products for years, if it ever does. A ton of research and development work would need to happen first, and there's no guarantee that any clinical-stage programs that come out of the collaboration will be proven safe and effective such that regulators ultimately permit them to be sold to the public.
But, in the long term, cutting business development deals to shore up its future place in the anti-obesity market is bullish, even if the animal data at the heart of the deal are derived from squirrels. Importantly, there's only one Fauna Bio -- no other biotech has its collection of squirrel hibernation experts and deep data.
When it comes to drug development in competitive markets, taking a unique approach might not always pay off, but when it does, the benefits can be massive. So if you're thinking about buying Eli Lilly stock, you should view its investment in squirrel hibernation studies to be a point in favor of doing so.
