Eli Lilly said Tuesday it plans to advance its next-generation obesity treatment into final-phase testing, but LLY stock dipped on 2023 guidance that was lighter than expected.
Investors have been deeply focused on tirzepatide, which loops in two hormones to help lower weight. But the company's next-generation drug retatrutide adds in a third element.
A preliminary analysis of Phase 2 testing suggests patients with obesity but not diabetes could lose 22%-24% of their weight over 48 weeks at the highest dose. That's better than the 16%-22.5% tirzepatide showed in its Phase 3 test.
UBS analyst Colin Bristol recently said it would be a "major positive" if Lilly moved retatrutide into late-stage testing. The obesity treatment market is heating up with three main competitors.
In addition to Lilly, Novo Nordisk already sells Wegovy and Amgen has an earlier-stage drug in testing.
But on the stock market today, LLY stock fell 2.3% to 358.66.
Guidance Drags LLY Stock
For the year, Lilly expects $30.3 billion to $30.8 billion in sales. That's 1% ahead of analysts' forecasts, SVB Securities analyst David Risinger said in a note to clients. But adjusted earnings guidance for $8.10-$8.30 per share lagged expectations by 11%, he said.
"The largest factor driving EPS guidance below expectations is (research and development) spending," he said. "The R&D guidance midpoint of $8.3 billion is $800 million or 11% above consensus and $560 million or 7% above our $7.7 billion (forecast)."
Risinger kept his outperform rating on LLY stock.
Bullishly, Lilly expects to launch up to four new drugs in 2023 — including an Alzheimer's treatment — and finish regulatory submissions for tirzepatide in obesity treatment.
Obesity Treatment Space Heats Up
Retatrutide differs from tirzepatide and Amgen's experimental obesity treatment as it adds in a third target to reduce weight. Novo's approved drug, Wegovy, works on a single hormone.
Lilly is also looking at retatrutide in type 2 diabetes.
Further, the company said it plans to begin a Phase 3 study of an oral diabetes medicine. Lilly believes that drug could also lead to 14%-15% weight loss over 36 weeks.
Success in obesity treatment could further help stoke LLY stock. Shares are trading near a record high and remain above their key moving averages, according to MarketSmith.com.
Lilly stock also has a strong Relative Strength Rating of 96, IBD Digital shows. This puts LLY stock in the top 4% of all stocks when it comes to 12-month performance.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
