Eli Lilly's (LLY -2.77%) Zepbound has shown it has what it takes to become a blockbuster. The weight-loss drug, following regulatory approval late last year, brought in $175 million in revenue in just its first few weeks on the market. Doctors and their patients are flocking to weight-loss drugs known as GLP-1 agonists, and demand has even surpassed supply. (Lilly's drug actually is a dual GLP-1/GIP receptor agonist, acting on two pathways involved in digestion instead of just one. Both types of treatments help regulate blood sugar levels and appetite.)
The market for obesity drugs may reach more than $100 billion by 2030, up by 16 times from today, according to Goldman Sachs Research. But one element could get in the way of this spectacular growth story, and that's the fact that Medicare won't reimburse these drugs for weight loss alone. The agency will only offer reimbursement if the drug is also approved and prescribed for a medical condition it covers.
This is a hurdle for many patients, who can't afford the $1,059 list price for a one-month supply of Zepbound. Recent news could help some of these patients, though, and broaden the revenue opportunity for Lilly. Here's the company's secret weapon, one that may help it win in the high-growth weight-loss market.
Image source: Getty Images.
Medicare reimbursement for Zepbound
This weapon has to do with potential approval for another indication, one that is reimbursed by Medicare, allowing for the reimbursement of Zepbound. Lilly recently announced fantastic results from a trial of the treatment in obese patients suffering from obstructive sleep apnea (OSA). The condition involves the collapse of the upper airway during sleep, leading to decreases in oxygen and potentially complications such as stroke and heart failure. About 80 million adult Americans suffer from OSA.
Two phase 3 studies of tirzepatide, the molecule in Zepbound, showed it reduced OSA severity by as much as 63% over the period of a year. This equals about 30 fewer OSA events per hour. The studies involved patients with moderate-to-severe OSA who were on positive airway pressure therapy as well as those who weren't. The studies met both primary and key secondary endpoints.
Based on the phase 3 study results, Lilly plans on submitting a regulatory request to the U.S. Food and Drug Administration (FDA) and other regulatory agencies internationally by the middle of this year. There's reason to be optimistic about the outcome due to the solid trial results and the fact that the FDA earlier granted Lilly Fast Track designation for tirzepatide in moderate-to-severe OSA -- a status meant to expedite development and review of candidates to address unmet medical needs.
Generally, regulatory review takes six to 10 months. So if all goes smoothly, Lilly could have another indication for Zepbound early next year.
Obesity and sleep apnea
Obesity is one of the biggest risk factors for sleep apnea, and about 40% of obese individuals suffer from it, according to a paper by Robert Wolk, Abu S.M. Shamsuzzaman, and Virend K. Somers in AHA Journals. Many patients seeking to lose weight also may qualify for Zepbound due to sleep apnea problems that they may not even know about. Lilly says about 85% of OSA cases go undiagnosed.
Lilly's secret weapon may be this new indication for Zepbound, one that opens the door to reimbursement for many potential patients. This could be a game-changer for them and lead to an expanded revenue opportunity for the big pharma company.
Of course, Lilly still faces competition in the market, mainly from Novo Nordisk, the maker of weight-loss drug Wegovy. (The companies also make two diabetes drugs that doctors prescribe for weight loss, Lilly's Mounjaro and Novo Nordisk's Ozempic.) But I see reimbursement as a bigger challenge than competition from Novo Nordisk or other drugmakers. Considering the number of people who want access to these products, there's room for more than one player to succeed.
And for you as an investor that means Lilly represents a great long-term buying opportunity -- even after the stock's 25% gain so far this year.
