The battle for leadership in the anti-obesity drug market is heating up. Eli Lilly (LLY 1.65%) and Novo Nordisk are the two undisputed frontrunners, but many other drugmakers are looking to challenge the status quo. Novo Nordisk's Wegovy, first approved in the U.S. in 2021, has been growing its sales rapidly.
However, Eli Lilly launched a competing product, Zepbound, late last year. Analysts have incredibly high hopes for Zepbound, and the medicine has so far lived up to the hype. Let's see what this could mean for investors.
Zepbound's supply constraints
Weight-loss therapies of the GLP-1 class Eli Lilly belongs to have soared in popularity in recent years. This momentum is set to continue for the foreseeable future. Some analysts have predicted that the market could be worth about $44 billion by 2030, up from $2.5 billion in 2022.
Eli Lilly's Zepbound, though it has only been approved since November, is already flying off the shelves. A spokesperson for the company said, "Due to the unprecedented demand for these medicines, some patients may experience difficulty when trying to fill their prescription at their pharmacy."
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Key Data Points
That matches what's happening on the ground. Many pharmacies are having trouble meeting demand for the medicine. Eli Lilly partnered with Amazon Pharmacy to deliver Zepbound, but several doses of the injectable medicine are listed as "currently unavailable" on the website. This isn't the first time a GLP-1 therapy hasn't been able to keep up with the demand; Wegovy encountered the same issue.
Eli Lilly is a strong buy
Though the shortage is nothing to celebrate for patients, the message is clear for investors. Analysts sometimes overshoot projections for some new medicines, but the evidence so far suggests that Zepbound is precisely as big a deal as Wall Street thought. Let's not forget that Zepbound is the same clinical compound as Eli Lilly's diabetes therapy, Mounjaro; the active ingredient is tirzepatide.
Some predicted that tirzepatide would go on to generate peak annual sales of $25 billion. That doesn't seem too far-fetched. In its first full year on the market, 2023, tirzepatide got more than 20% of the way there by racking up a little over $5 billion in revenue. Don't be surprised if it doubles that total this year. That said, there is more to Eli Lilly than tirzepatide.
That's what gives the company an edge over its longtime rival in the diabetes market, Novo Nordisk. Though both are excellent biotech stocks, Eli Lilly's lineup is much more diversified and less reliant on a single therapeutic area. The company's cancer medicine, Verzenio, is still going strong. It launched a brand-new oncology product called Jaypirca last year, which should also make meaningful contributions down the line.
In immunology, Eli Lilly's brand-new ulcerative colitis therapy Omvoh will supplement its longtime growth driver, plaque psoriasis treatment Taltz. Further, Eli Lilly could still earn approval for its Alzheimer's disease treatment, donanemab, despite regulators in the U.S. delaying final review of the investigational medicine. And even if it doesn't earn that nod, Eli Lilly's lineup is strong enough as it is to drive top-line growth for many years to come.
That's especially the case since tirzepatide will almost certainly earn important label expansions. It is being investigated as a potential treatment for obstructive sleep apnea and the highly promising area of non-alcoholic steatohepatitis, among other indications. No wonder analysts see Eli Lilly's earnings per share growing at about 50% per year for the next five years.
The biotech should deliver market-beating returns along the way, which makes it an excellent stock to buy.
