Investors are closely watching two Eli Lilly battles that will unfold in 2023. LLY stock continues a fevered streak, tacking on frequent new highs as it experiments with a treatment for Alzheimer's disease as well as obesity.
Both areas of study could represent blockbuster opportunities for a company already raking in north of $28 billion in sales each year — largely on the back of its diabetes drugs. Over the next several years, these new meds could help Lilly add another $19 billion to its top line, according to FactSet estimates.
But UBS analyst Colin Bristow says there are near-term obstacles for Lilly to hurdle. The company is in final-phase testing of an Alzheimer's treatment that relies on a controversial mechanism. Meanwhile, diabetes treatment Mounjaro could trip over the same supply chain challenges facing a rival from Novo Nordisk. Lilly is also testing Mounjaro — under the experimental name tirzepatide — as an obesity treatment.
"We acknowledge these near-term risks and agree there could be pressure on the stock into these events, especially the (Alzheimer's treatment) donanemab readout, but view the long-term thesis as very much intact," Bristow said in a recent note to clients. He has a buy rating and 420 price target on LLY stock.
LLY Stock: Obesity Treatments Are Key
The obesity treatment space is rapidly heating up with a battle brewing between Lilly, Novo and Amgen. Treatments from all three stimulate a hormone called GLP-1. On top of that, Lilly's tirzepatide stimulates a hormone called GIPR. Amgen's drug attempts to block that hormone.
In one Phase 3 test, the highest dose of Lilly's obesity treatment resulted in up to 22.5% weight loss after 72 weeks. By comparison, patients who received Novo's Wegovy lost 17% of their body weight over 68 weeks. The Amgen drug called AMG 133 is in earlier-stage testing. Over 12 weeks, patients lost 14.5% of their body weight.
Lilly is in the process of asking the Food and Drug Administration to approve tirzepatide as an obesity treatment. It expects to finish that process in the middle of next year, setting up a potential approval in late 2023 or early 2024. LLY stock has steadily climbed since announcing its plans in obesity.
It's also possible these same drugs could help patients with other metabolic conditions.
Lilly is testing tirzepatide in patients at risk of heart failure and cardiovascular problems, as well as those with sleep apnea and nonalcoholic steatohepatitis. Novo is studying Wegovy in NASH. It's also testing a pill form of the same drug, known as semaglutide, in diabetes and obesity. It expects to release results in the first half of 2023.
"Over the next year, several clinical (studies) are expected to read out, including several studies of semaglutide and tirzepatide, which we predict will significantly build on the momentum behind the recent clinical data, and will lead to an inflection around therapeutic options and start the destigmatization of the disease," of obesity, William Blair analysts said in a recent report.
Next-Generation Approaches
The companies also are working on next-generation obesity treatments. Lilly recently announced its plan to send one of those into final-phase testing. Investors in LLY stock are closely focused on tirzepatide — which loops in two hormones to target weight loss. Next-generation retatrutide adds in a third element.
"The (retatrutide) weight loss slope at 48 weeks exceeds what was seen with tirzepatide at the same time point," UBS analyst Bristow said. This implies "continued separation/differentiation with more time."
Simply put, retatrutide could outdo tirzepatide in obesity treatment.
Meanwhile, Lilly is testing an oral treatment that targets GLP-1. Like retatrutide and tirzepatide, the oral medicine could eventually oust Lilly's leading diabetes med, Trulicity. Trulicity is an injection that stimulates the GLP-1 hormone.
Lilly is testing the oral medicine in patients with obesity and diabetes. In Phase 2 testing, patients with diabetes lost 9.6% body weight after 26 weeks of treatment with the oral medicine. Patients with obesity lost 14%-15% body weight after 36 weeks.
All of this could help de-stigmatize obesity and add to treatment options. Evaluate Pharma estimates the obesity treatment market will grow to $14.5 billion.
"Although given the prevalence, it can be argued that even these large market estimates may be conservative," the William Blair analysts said.
Alzheimer's Treatment Could Weigh On LLY Stock
The thesis surrounding Alzheimer's treatment is more complicated.
Eli Lilly calls its planned drug in this realm donanemab, and it aims to remove built-up plaque, known as beta amyloid, in the brain. Beta amyloid is a hallmark of Alzheimer's disease, but experts disagree whether it causes the disease.
Biogen gained FDA accelerated approval for an amyloid-targeting drug called Aduhelm. But the Centers for Medicare and Medicaid Services declined to broadly reimburse for it, saying the benefit on cognition remained dubious.
But Biogen is working on another amyloid-targeting drug called lecanemab. Over 18 months, patients who received lecanemab showed 27% slower decline in cognition than placebo recipients. LLY stock rose almost 2% on the news. But Roche also had a failure in this space.
A Phase 3 study "of Eli Lilly's donanemab, which has previously shown potentially best-in-class amyloid-lowering based on a positive Phase 2 study, is scheduled to read out in 2023," William Blair analysts said. This "could provide yet another key piece of evidence of the (amyloid) mechanism, if positive."
The pits and falls in Alzheimer's treatment, though, could weigh on LLY stock, says Bristow, the UBS analyst.
Still, "2023 is a big year for Mounjaro (under the test name tirzepatide) and Alzheimer's," he said.
Highly Rated Pharma Stock
Shares of Eli Lilly have a strong Relative Strength Rating of 94 out of a best-possible 99. This means they rank in the leading 6% of all stocks in terms of 12-month performance, according to IBD Digital.
LLY stock has a lower Composite Rating of 84, however, meaning it lands among the top 16% when it comes to fundamental and technical measures.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
