Morgan Stanley sees profound shift in diabetes treatment boosting opportunity for weight-loss drugs

Published Tue, Jul 25 202310:36 AM EDTUpdated Tue, Jul 25 202310:54 AM EDT

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

Morgan Stanley analysts said they are seeing a profound shift in the way diabetes is being treated, with doctors intensifying the focus on weight management, which is accelerating the uptake of GLP-1 medications. What's more, the analysts anticipate that over the next 24 months, this weight-centric approach will start to spread to other health complications — from heart failure to sleep apnea to kidney disease. "Over the past 12 months, we have increased our Novo/Lilly GLP-1 revenues in diabetes from $40bn to $56bn in 2030, outpacing revenue upgrades in the obesity setting," the analysts wrote in a research note published last Friday, referring to their sales forecasts. In the GLP-1 category, Novo Nordisk markets semaglutide under the brand name Ozempic for the treatment of Type 2 diabetes and under the name Wegovy to treat obesity. Meanwhile, Eli Lilly has been approved to sell Mounjaro, or tirzepatide, as a Type 2 diabetes treatment. The drug is expected to be approved by the Food and Drug Administration for weight loss by the end of this year. Both GLP-1 medications have attracted a lot of attention for their ability to lower blood sugar, curb food cravings and help patients with weight loss. Both companies also have next-generation products in the pipeline that show early promise of being even more effective. While other biotech and pharmaceutical companies are developing their own products , Novo and Lilly are expected to dominate the category for years to come. Morgan Stanley said GLP-1 medicines now make up nearly 30% of all new diabetes prescriptions in the U.S. About 22% of all diabetes prescriptions are for this class of drug. Outside the U.S., the uptake has been slower, which the analysts say is an opportunity for future growth; they put global sales, excluding the U.S., at more than $70 billion by 2030. Eyes on Novo's Select study Morgan Stanley's assessment comes ahead of highly anticipated results from Novo's Select study, which is expected to be released sometime in the coming weeks. The five-year study looks at the long-term cardiovascular benefits that obese patients have realized while taking Wegovy. The 17,500 patients in the study took either Wegovy or a placebo. NVO YTD mountain Novo Nordisk shares have climbed about 20% year to date. Positive results in the trial could help support the idea that treating obesity and less extreme weight gain with GLP-1 medications will make patients healthier and ultimately save the health-care system money. Heart disease and high blood pressure are two conditions commonly associated with excess weight, but there are also connections to sleep apnea, chronic kidney disease and other conditions. Investors are hoping that strengthening the tie between weight loss and better health will help patients get insurance coverage for these pricey medications. That includes Medicare, which is not allowed to reimburse patients for weight loss medications. Morgan Stanley said it has been surprised already by how quickly insurers are adding coverage of the drugs, which can cost more than $1,000 per month. "Reimbursement for obesity medicines has expanded much faster than we had anticipated, covering 40m lives in the U.S., which exceeds the total number of people estimated to be suffering from diabetes," they said. The analysts now anticipate the market for GLP-1 medications will reach $77 billion in 2030, up from a prior forecast of $54 billion. "We have remodeled the obesity medicine opportunity based on the faster rate of uptake seen in the U.S., with our expectation that positive SELECT trial data will drive positive treatment guideline changes at the end of 2024. We believe the domino effect of this will be to unlock the patient-physician engagement bottleneck even further and broaden payer engagement," Morgan Stanley said. The Wall Street investment bank also raised its price target for Lilly shares to $560 from $551. The new target implies 20% upside from Monday's close. Morgan Stanley's price target is far higher than the $471 average. Lilly shares have climbed about 26% year to date, through Monday. LLY 6M mountain Eli Lilly shares are up more than 26% year to date. Earnings upside for Lilly Meanwhile, Wells Fargo on Monday predicted Lilly's second-quarter revenue would top expectations thanks to stronger-than-expected Mounjaro sales gains. "We see LLY edging revs by ~ 3% during 2Q earnings as Mounjaro revs are highly sensitive to improvements in reimbursement. EPS guide of $8.65-$8.85/sh may not change meaningfully as LLY could opt to re-invest in upcoming launches in [Alzheimer's disease] and immunology," analyst Mohit Bansal wrote in a research note explaining the forecast. Lilly is scheduled to report second-quarter results Aug. 8. Lilly has been offering co-pay assistance coupons to help patients begin using Mounjaro even if their health insurers aren't yet fully reimbursing for the drug. However, as more insurance companies add the drug to their list of covered medications, the amount of revenue Lilly recognizes per prescription can rise. "We think price will continue to improve as lower payer mix patients from 2022 co-pay card roll off," Bansal said. That's why he's not concerned that the total number of Mounjaro prescriptions has slowed since the beginning of June, as he expects it's due to the churn of less profitable patients who had used the co-pay card program. This means revenue growth may have continued in June as more patients, or their insurance providers, were paying a fuller price. — CNBC's Michael Bloom contributed to this report.