The market for weight management medicines has been the hottest therapeutic area in the past two years. Plenty of companies are now trying to make waves in this space.
But there is one company that's almost certain to dominate it at least through the end of the decade, and that's Eli Lilly (LLY -2.40%). The pharmaceutical giant has far too much going its way. And even beyond this area, there are other excellent reasons to invest in the stock.
Only one notable competitor
Analysts predict that the weight management space will experience significant growth over the next five years. Eli Lilly's success in this area is attracting plenty of competitors, and the number of potential medicines in development has ballooned recently. However, Eli Lilly should only have one serious competitor through the end of the decade, and that will be none other than Novo Nordisk. The two have fought for market share in obesity care for decades.
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Novo Nordisk launched semaglutide, the active ingredient in the anti-obesity medicine Wegovy, before Eli Lilly's tirzepatide (the active ingredient in Zepbound). They are both generating mouthwatering sales. Further, Eli Lilly and Novo Nordisk also have incredibly deep pipelines in this area. It's hard to find a single weight loss candidate in the entire industry that has produced better clinical trial results than those being developed by either Eli Lilly or Novo Nordisk.
However, the former arguably has the edge over its longtime competitor, and should keep it through the next five years. Here are four reasons why.
First, tirzepatide proved more effective than semaglutide in helping patients lose weight in clinical trials that directly pitted the two medications against each other. Second, although Novo Nordisk's potential next-gen medicine CagriSema seems even more effective, its 22.7% mean weight loss after 68 weeks in a phase 3 study was disappointing.
Novo Nordisk's management was shooting for 25%. CagriSema is costly to manufacture, so even with higher efficacy, it may not achieve the commercial success it would have if it had met the 25% mean weight loss target Novo Nordisk hoped for. Third, Eli Lilly has had several other clinical successes. It posted strong phase 3 results for orforglipron, an investigational oral GLP-1 medicine.
It has an incredibly promising candidate in retatrutide, a potential triple agonist -- that is, it mimics the action of three gut hormones: GLP-1, GIP, and glucagon. That's one more than tirzepatide, which was already a breakthrough, being the first dual GLP-1/GIP agonist. Retatrutide also performed well in midstage studies.
Fourth, Eli Lilly has also made a move that could improve its already strong prospects in weight management. The company is partnering with Camurus, a Sweden-based pharmaceutical company whose FluidCrystal technology is designed for the long-acting delivery of injectable therapies. Eli Lilly's goal is to utilize this technology with its own treatments to address one of their shortcomings. Once patients discontinue weight loss medications, they tend to regain the weight.
Given Eli Lilly's extensive pipeline, recent clinical successes, and its lead over Novo Nordisk, it should remain the top player in this area through 2030.
Is Eli Lilly stock a buy?
Eli Lilly isn't just a diabetes or a weight loss company. One of the pharmaceutical giant's strengths is that it has been able to develop breakthrough medicines in other fields in recent years, including Alzheimer's disease (AD), the area that was long known as the graveyard of investigational therapies, because the overwhelming majority of companies that tried to develop treatments for AD failed. Eli Lilly's financial results also remain incredibly strong.
The company's first-quarter revenue increased by 45% year over year to $12.7 billion, while its net income was up by 29% year over year to $3 billion. Some might point to Eli Lilly's forward price-to-earnings (P/E) of 35.3, which is much higher than the healthcare industry's average of 15.9. However, the stock is worth the premium considering its revenue and earnings are growing much faster than most similarly sized peers, and it also has a pipeline that looks far more promising than most other pharmaceutical giants.
Even at current levels, Eli Lilly's shares are scooping up and holding onto for a long time.
