Eli Lilly Isn't Replacing Zepbound -- It's Building an Obesity Empire

Key Points

Eli Lilly's newer weight-loss medicines will help cement its dominance in the market.

The company could ride this tailwind through the medium term and deliver strong returns.

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Eli Lilly (NYSE: LLY) currently leads the weight loss market thanks to Zepbound. Given that analysts project this area will gain significant traction in the coming years, that may provide a strong tailwind to the drugmaker. However, the bears will point out that Eli Lilly could run into several problems. First, increased competition will erode some of its market share.

Second, Eli Lilly's newer launches could cannibalize Zepbound's sales and do little to expand the market. So, the company's pipeline won't save it, or so the argument goes. In my view, the second line of reasoning is missing an important point about Eli Lilly's strategy in this market: The company is building a portfolio of differentiated therapies that will help it dominate this space over the next decade.

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Eli Lilly's weight loss empire in the making

Consider retatrutide, arguably Eli Lilly's most promising pipeline candidate. This medicine mimics the actions of three separate gut hormones, whereas Zepbound mimics only two. Addressing three different pathways could confer retatrutide increased efficacy. And so far, studies have shown evidence of this. Putting aside the difficulty of comparing results across trials, retatrutide posted a mean weight loss of 28.7% at the highest dose in a 68-week phase 3 study.

Zepbound's performance was comparatively unimpressive, with a mean weight loss of 20.2% over 72 weeks in a separate trial. Based on these results, it may seem like a foregone conclusion that retatrutide will simply compete with Zepbound. However, management has said it will primarily target people with very high body mass indexes (BMI) who need more aggressive weight loss options.

Consider that an estimated 9% of U.S. adults aged 20 and older -- or about 22 million people -- have severe obesity (with a BMI greater than or equal to 40). Assuming 30% penetration in this patient group, or about 6.6 million people, and an annual price of about $10,000 (which is more or less in line with other weight loss medicines), the market for anti-obesity therapies in this specific niche could be worth $66 billion at its peak. Eli Lilly would, eventually, encounter competition even in this corner.

Others, like Novo Nordisk, are developing their own triple agonists. But if Eli Lilly can grab 20% to 30% share of this market, retatrutide could peak at about $19 billion in weight management. That's before we account for the fact that it will also target diabetes patients. What does this mean for Eli Lilly? Retatrutide and Zepbound can coexist, as can Foundayo, a new oral GLP-1 pill for which the drugmaker recently earned approval.

Foundayo is also going after its own area of the broader chronic weight management market: Patients who avoid injections and prefer oral pills. Here's the bottom line for investors: Eli Lilly will seek to launch medicines that target many niche corners of the weight loss space as it expands over the next decade. And given the drugmaker's pipeline, it is well-established to remain the leader for a while. The healthcare stock remains a strong buy for those bullish on GLP-1 medicines.

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Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.