The FDA Approved Eli Lilly’s Diabetes Drug. But the Most Exciting Market May Be Something Else.

The FDA Approved Eli Lilly's Diabetes Drug. But the Most Exciting Market May Be Something Else.

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While the S&P 500 has dropped 4.4% in the past 12 months, Eli Lilly shares are up 50%.

Jonathan Weiss/Dreamstime

The U.S. Food and Drug Administration approved

Eli Lilly

novel treatment for diabetes on Friday, in a widely anticipated move after the drug led to impressive drops in blood sugar and body weight in clinical trials.

The approval for tirzepatide—which Lilly will market under the brand name Mounjaro—isn’t for weight loss but for Type 2 diabetes. However, doctors and patients are excited about the injectable drug’s potential to treat obesity.

Lilly stock (ticker: LLY) closed up just 0.3% Friday, at $291.63, but it has proved a favorite even in a faltering market. While the

S&P 500

has dropped 4.4% in the past 12 months, Lilly shares are up 50%. The Indianapolis-based company has a wide pipeline of new drugs, but tirzepatide is a standout. The drug is at the heart of many Buy recommendations for Lilly stock.

“The approval of Mounjaro is an exciting step forward for people living with Type 2 diabetes,” said Lilly medical director Juan Pablo Frias, in the company’s Friday announcement.

The drug belongs to a new class of treatments that activate receptors for natural hormones called incretins, which reduce appetite and release insulin. Lilly’s rival in the insulin market,

Novo Nordisk

(NVO), is already having success with the injectable drug semaglutide—which boosts the activity of the hormone known as glucagon-like peptide-1, or GLP-1. Novo markets the drug as Ozempic for Type 2 diabetes, and as Wegovy for weight loss. The Danish pharmaceutical firm reported 2021 sales of $1.2 billion for its weight-loss drugs like Wegovy.

Lilly’s new drug packs an extra punch. The once-weekly Mounjaro activates GLP-1 but also boosts another hormone called the glucose-dependent insulinotropic polypeptide, or GIP. In a series of clinical trials, the dual-targeting treatment lowered patients’ blood sugar better than Novo’s Ozempic—and enabled patients to lose an average of 12 to 25 pounds.

While not yet approved as an obesity treatment, Lilly’s GIP/GLP-1 drug has performed remarkably well in clinical trials for weight loss. Obesity experts marveled when the company reported in late April that its dual-acting injection helped patients lose an average of 16% to 22.5% of their weight: That is on par with bariatric surgery. Lilly is continuing studies of the drug as a weight-loss treatment.

Lilly has said that new obesity treatments could deliver blockbuster sales for the next two decades. Many on Wall Street agree. Morgan Stanley analyst Terence Flynn considers tirzepatide to be Lilly’s key long-term sales driver. When the company reported its weight-loss study with its earnings in late April, Flynn reiterated his Buy rating on Lilly stock. His price target is $369.

After Lilly’s earnings report, BMO Capital Markets analyst Evan Seigerman wrote that tirzepatide was the star of Lilly’s earnings call. One of many bulls on the stock, Seigerman raised his price target for the shares to $358. He thinks the drug’s annual sales for treating diabetes and obesity could eventually surpass $6 billion.

Write to Bill Alpert at [email protected]

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