Eli Lilly stock jumped Friday after the company announced a nearly $2 billion takeover that could bolster its efforts among weight-loss drugs.
Under the terms of the deal, Lilly will spend $1.93 billion to buy privately held Versanis Bio. Versanis' leading drug is called bimagrumab.
In a previous iteration under Novartis, bimagrumab failed to make a difference for patients with a muscle-wasting disease. But Versanis licensed the drug for $70 million and pivoted to obesity treatment.
Versanis now believes adding bimagrumab to a drug like Lilly's Mounjaro could help increase fat loss while preserving muscle mass.
On today's stock market, Eli Lilly stock jumped 3.4% and closed at 449.46.
Eli Lilly Stock: Blocking Muscle Loss
Versanis is currently testing bimagrumab in combination with Novo Nordisk's semaglutide. Novo sells injectable versions of semaglutide known as Wegovy and Ozempic. Wegovy is a weight-loss drug while Ozempic treats type 2 diabetes. Rybelsus is Novo's oral diabetes treatment.
Semaglutide, like Eli Lilly's Mounjaro, works by mimicking a gut hormone called GLP-1. By doing so, these drugs increase feelings of satiety and slow how fast the stomach empties itself. Mounjaro also links in a second hormone to improve outcomes.
But these drugs are also tied to lean muscle loss. As a result, patients often regain the weight lost while taking an obesity treatment.
Versanis has already tested bimagrumab as a solo treatment in patients with type 2 diabetes and obesity. Patients lost 6.5% of their body weight over 48 weeks, SVB Securities analyst David Risinger said in a note to clients. He has an outperform rating on Eli Lilly stock.
Improving On Weight-Loss Drugs?
The results for bimagrumab so far as "very good," Evercore ISI analyst Umer Raffat. Of the yearlong weight loss, 22% was from fat reduction. Patients also gained 4% lean muscle mass, he said in a note. About two-thirds of patients lost at least 5% of their body weight.
But bimagrumab also carries several side effects, he said. In the study of patients diabetes, 40% of bimagrumab patients reported diarrhea and 40% experienced muscle spasms. There were also reports of pancreatic and liver enzyme increases.
The gastrointestinal side effects could be troublesome. Drugs in the GLP-1 class are already tied to diarrhea and nausea.
"In summary, the deal's strategy and optionality make sense," Raffat said. "But is it the right drug commercially given all the safety issues I highlighted? To be determined."
He has an in-line rating on Eli Lilly stock.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
