Well, now that our Merck stock pick is decidedly outperforming a shaky market, we've had no choice but to unleash our pharma analyst to deliver another pick for a pharma stock that just had a huge breakout.
Eli Lilly, the Indianapolis-based pharma titan made headlines on Friday when their new drug, Mounjaro, got approved for the treatment of type II diabetes. Their stock popped 4% on the news but is quickly giving that ground back thanks to a broader selloff in the S&P 500.
These gains are very small compared to the incredible growth potential Mounjaro has.
In addition to being a HUGE iterative improvement on other Type-II Diabetes treatments, Mounjaro is currently demonstrating REMARKABLE efficacy for treating obesity.
Obesity is slowly replacing heart disease as the definitive health crisis in America. Treating obesity has been really hard outside of diet, exercise, and invasive surgeries. If Mounjaro's current results hold, it will corner two high-revenue markets simultaneously.
Let’s get into it👇
Eli Lilly Overview:
Eli Lilly has been around since the late 1800's. Their current slate of products is currently focused on cancer and diabetes, and the team has managed to provide solid revenue growth with those and COVID-19 antibody treatments.
They've managed to grow revenue by 15% in Q1, which was really strong. But we really need to focus on Mounjaro for the rest of this post as it's truly exciting.
Mounjaro is a Diabetes Game-Changer:
We're not going to bore you with too much biochem here, but Mounjaro is a great improvement off of current diabetes treatments like Ozempic. Basically, type II diabetes is a disease where your pancreas loses the ability to naturally secrete insulin, which is the hormone in your body that helps you burn your blood sugar for energy.
Treating type-II diabetes is really expensive because patients have to consistently inject themselves with insulin to keep their blood sugar in check. It's a real hassle and can get really expensive.
However, Ozempic and Mounjaro are a class of drugs that activate a hormone called GLP-1. Basically, GLP-1 helps your body to reduce appetite and increase insulin levels. This is a great 1-2 punch that helps diabetics actually treat their diabetes instead of just managing it.
Mounjaro takes this a step further by also being able to activate another hormone called GIP. GIP is the real game-changer here as this is a kind of master hormone that activates a whole series of pathways that work together to reduce blood sugar.
Scientists have tried to make drugs that activate GIP for diabetics in the past, but without also activating GLP-1, the insulin response in diabetics had negative side effects.
Long story short, Mounjaro not only turns on your body's ability to reduce blood sugar, it also turns OFF your body's ability to release stored sugar from your reserves. This 1-2 punch reduces appetite, keeps blood sugar in check, and maintains a good insulin response even in folks with diabetes.
Mounjaro reduces blood sugar more effectively than Ozempic--which pulled in about $1.6 Billion in revenue in 2021. So Eli Lilly's stock rose as the market came to terms with the fact that they were about to start taking a huge bite out of a lucrative industry.
But that's pennies compared to Mounjaro's internal trials.
Mounjaro as a Weight-Loss Drug:
Eli Lilly's presentation on Mounjaro as a weight-loss drug during their Q1 earnings call a few weeks back was WILD.
But we need to caveat these results. This is internal data from Eli Lilly from initial trials. If you're going to play the pharma game, don't get burned by p-hacking. Wait for results that come out of final FDA approval, not initial trials.
However, just look at this graph:
Okay, buried in this graph is the fact that for people taking 15mg of Mounjaro, over half of them managed to lose more than 20% of their weight.
The average in these weight loss trials was between 15 and 22%. People who take weekly injections of Mounjaro on average lost 15% to 22% of their weight.
This is on par with the average results chronically obese folks get from bariatric surgery (y'know, stomach stapling) which is really expensive and has a lot of complications. And people are getting these results from an injection. Injectable stomach stapling, people! What else do I need to say?
There are other injectable weight-loss treatments on the market right now, each with billions of dollars of annual revenue. And none of them have results like what's coming out for Mounjaro.
There's nothing concrete in the approvals pipeline for using Mounjaro as a weight-loss drug, but Eli Lilly is confident about the roadmap here:
If Eli Lilly can get Mounjaro approved for obesity treatment by early 2023, it will be a real boom for the stock.
Eli Lilly Outlook:
While Mounjaro is about to provide a lot of revenue growth due to this diabetes approval, this is still a slightly riskier play than Merck. Clinical trials can reveal a lot of issues, and those wild weight-loss numbers that Lilly has reported will likely go down.
However, the reward is also MUCH higher for Eli Lilly as we really haven't seen a treatment for obesity this promising...basically ever.
Meanwhile, the rest of Eli Lilly's portfolio is showing strong growth across the board. Lilly will provide decent growth even without Mounjaro as a revolutionary obesity treatment. We're really excited to see where this goes from here.
With Healthcare being a massive theme for us in 2022 (more on this to come), Eli Lilly is a pick with serious long-term upside amidst a market that seems to go lower every single day.
Price Target: $342 (20% upside)
Current Price: $285
Target Date: Q1 2023
Rating: Overweight
Risk / Reward: Medium / Medium-High
Ticker: LLY
Market Cap: $274B
Dividend Yield: 1.36%