Eli Lilly's weight loss drugs trounce sky-high expectations, boosting the stock

Published Tue, Jun 27 20234:22 PM EDTUpdated Tue, Jun 27 20234:56 PM EDT

Christina Cheddar Berk @in/christina-cheddar-berk-b864404/

Eli Lilly bested investors' super-high expectations at the American Diabetes Association conference this week, cementing its leadership in metabolic medicine and prompting Wall Street analysts to take another look at its sales forecasts. Across the board, analysts said the news is likely to lend support to Lilly shares, which have already popped more than 26% this year. At least one analyst felt the news was strong enough to immediately adjust his long-term sales forecast. The updates included new data on phase 2 studies of weight loss medications orforglipron , an oral GLP-1 receptor agonist, and retatrutide , a next-generation triagonist that combines three incretin hormones — GLP-1, GIP and glucagon. Analysts were encouraged by the findings of both early stage trials. In the case of orforglipron, overweight or obese patients could eventually have an easier way to take a GLP-1 medication. At the moment, those medications are usually delivered via a once-a-week injection. LLY YTD mountain Eli Lilly shares set a fresh 52-week high in trading Tuesday. Even more impressive were the results of the retatrutide study, which raised the bar on efficacy. Patients in the study on average lost more than 24% of their starting weight at the end of 48 weeks. What's more, some showed no signs their weight loss was leveling off, suggesting they could continue to shed pounds. These drugs could add to the success Lilly is already seeing with tirzepatide, a GLP-1 drug that has already been approved to treat type 2 diabetes under the brand name Mounjaro. The drug is expected to be approved as a weight loss treatment by the end of the year, and join Novo Nordisk 's Wegovy and Ozempic in the market. Both use semaglutide, but Ozempic is marketed as a type 2 diabetes treatment, while Wegovy is primarily for weight loss. All-time high In trading Tuesday, Lilly's shares hit a record high of $467.98 intraday before closing up 2.6% at $464.65. Earlier in the day, Barclays analyst Carter Gould raised his price target on Lilly's shares to $500 from $420, implying 10% upside from Monday's closing price. Gould now anticipates Lilly's portfolio of incretin drugs will tally $49 billion in sales in 2030, up from a prior range of $38 billion to $40 billion. "In practice, we now model the rise of Mounjaro, as well as the subsequent share shifts to these next wave assets over the 2H of the decade with Mounjaro peaking in 2028 at ~$27.7bn, while we model the next wave reaching $32bn in 2030 and $42bn in 2032," Gould wrote in a research note. "We forecast the total Mounjaro + Orforglipron + Retatrutide portfolio reaching $48-49bn over the 2030-2032 period, with declining pricing." Gould said orforglipron appears to be a "best-in-class" oral medication. Many analysts see an oral GLP-1 medication as helpful to patients who don't want to give themselves an injection. Analysts also say an oral medication will help ease supply bottlenecks that have been a problem in the category. Bank of America's Geoff Meacham said retatrutide "exceeded expectations" for weight loss. He noted that most other trials have included a greater proportion of women, who have tended to lose a greater percentage of weight during the study. "This is important, as while the overall 22.4% weight loss was impressive, looking at men and women separately, weight loss was 21.9% and 28.5%, respectively, with the slope in females not yet plateauing. Further, 100% of patients lost ≥5% and 26% of patients lost ≥30% of their weight, which we'd highlight as quite impressive," Meacham said, reiterating his buy rating on Lilly and $500 price target. Also notable in the retatrutide trial was typical reduction of more than 5% in liver fat in a subset of patients with nonalcoholic fatty liver disease, the analysts said. "Given these results, we think retatrutide could have a role in the pre-fibrosis NASH market (which largely overlaps with the drug's core obesity/T2D potential indications)," JPMorgan analyst Chris Schott wrote in a research note. Schott also described the weight loss as "impressive" and said it will likely compare favorably with Novo's next-generation drug CagriSema, which is expected to show weight loss of more than 25% when it releases its next update. Shaping up as a duopoly Several analysts said the market appears to be shaping up as a duopoly of Novo and Lilly. BMO Capital Markets analyst Evan David Seigerman expects Lilly to dominate the space into the 2030s. He rates the Indianapolis-based drugmaker outperform with a $505 price target. "These data firmly place Lilly in the lead of the 'metabolic revolution' driven by incretin therapy," Seigerman wrote. "We model Lilly's broader GLP-1RA+ franchise as a > $50B opportunity across the metabolic franchise, including Mounjaro with upside from the retatrutide (triple-G) and orals (anchored by orforglipron)," he said. "These data validate our thesis of continued dominance, and what appears to be a broadening addressable market, options that could drive access and lengthen treatment duration." Morgan Stanley analyst Terence Flynn, who has a $507 price target on Lilly shares, said he is modeling the launches of the oral GLP-1 orforglipron and retatrutide (GGG) in 2026 and 2027, respectively. — CNBC's Michael Bloom contributed to this report.