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Lilly Just Made A Bullish Call On Its Next-Gen Obesity Drug


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Eli Lilly (LLY) 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.




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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 (NVO) already sells Wegovy and Amgen (AMGN) has an earlier-stage drug in testing.

But in morning trades on the stock market today, LLY stock dipped 1.1% near 363.40.

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.

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