Eli Lilly is the IBD Stock Of The Day after "transformative" data involving an obesity treatment helped LLY stock retain its recent breakout.
Patients lost up to 52 pounds over roughly a year and a half while receiving weekly injections of Lilly's experimental drug, tirzepatide. Nearly two-thirds of patients lost at least 20% of their body weight at a higher dose.
The results help pit tirzepatide against Novo Nordisk's similar injection, Wegovy. Wegovy is a chronic weight management medicine. It also sells under the name Ozempic as a diabetes med. Similarly, Lilly is testing tirzepatide in diabetes and obesity, as well as other weight-related diseases.
"We expect tirzepatide's approval in diabetes in the coming weeks and a relatively rapid launch in that indication, with even more meaningful uptake after an obesity approval, which we model in 2024 but could come earlier," Mizuho Securities analyst Vamil Divan said in a recent note to clients.
He has a buy rating and 356 price target on LLY stock.
LLY Stock: 'Impressive' Potential In Diabetes, Obesity
Tirzepatide is a multibillion-dollar opportunity, Divan said.
"Tirzepatide's profile in the diabetes population has always been impressive to us, but we are even more impressed now by the product's profile given the strong top-line results from the (study called) Surmount-1 in overweight or obese patients who do not have diabetes," he said.
Dr. Jeff Emmick, Lilly's vice president of product development, declined to comment on how tirzepatide would compare with Novo Nordisk's Wegovy in obesity treatment without a head-to-head study. Tirzepatide activates the body's receptors for two natural incretin hormones. Wegovy activates one incretin hormone.
"However, we are highly encouraged by the positive results that tirzepatide deliver in Surmount-1 for people living with obesity, including weight loss of up to 22.5% or 52 pounds," he said in an email. "Notably, tirzepatide is the first investigational medicine to deliver more than 20% body weight reductions on average in a Phase 3 clinical (study)."
There are more than 650 million people worldwide living with obesity. Emmick contends they deserve multiple treatment options.
Alzheimer's Treatment Also On Deck
But tirzepatide isn't the only opportunity LLY stock investors are watching. The company is testing a potential Alzheimer's treatment called donanemab. Donanemab uses the same mechanism as Biogen drug Aduhelm, clearing abnormal protein called beta amyloid in the brain.
Divan says donanemab could gain accelerated approval in early 2023. But Lilly would still have to run additional testing to prove removing beta amyloid leads to a cognitive benefit for patients. The struggle for Biogen led Medicare officials to restrict Aduhelm coverage.
"The key to donanemab's outlook remains the ongoing, confirmatory Phase 3 (test called) Trailblazer-Alz 2, with data expected in mid-2023," Divan said. "We continue to assume zero sales for donanemab in 2023 and minimal probability-adjusted sales in 2024 while waiting for the product to obtain full regulatory approval and for reimbursement to be secured."
Donanemab could be a $5 billion opportunity by 2030, he said.
First-Quarter Earnings Beat
Lilly released the tirzepatide results at the same time it reported first-quarter earnings. The quarter was also a bright spot with adjusted earnings rocketing 63% year over year to $2.62 per share and sales rising 15% to $7.81 billion. Both measures easily beat expectations.
The results narrowly keep LLY stock out of CAN SLIM recommendations, however. Savvy investors are encouraged to find stocks with recent 20%-25% earnings and sales growth. Sales missed that bar.
In the second quarter, analysts polled by FactSet expect Lilly to earn $1.76 per share on $6.81 billion in sales. Earnings would fall about 6% and sales would inch up 1%.
Still, LLY stock has high ratings across the IBD Digital board. Shares have a strong Composite Rating of 97, putting them in the leading 3% of all stocks in terms of fundamental and technical measures. The stock also has a Relative Strength Rating of 95. This puts shares in the leading 5% of all stocks in terms of 12-month performance.
Also notable, LLY stock remains in the 5% buy zone above a buy point at 284 out of a cup base. The stock broke out on March 17, according to MarketSmith.com. The buy zone runs from 284-298.20.
Amid a downtrodden market, Lilly shares managed a small gain of 0.35% to 286.69 on the stock market today.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
