The global rate of obesity has tripled since 1975 and the number of people with obesity is projected to be 1.5 billion by 2035. Roughly 40% of American adults are obese including out of eleven who are severely obese. Nearly one in six have diabetes. Worldwide, over 1 billion people are obese and one in ten have diabetes. Eli Lilly and Novo Nordisk were the first to market with anti-obesity and diabetes drugs called glucagon-like peptide agonists (GLP-1s), which mimic the action of a naturally occurring hormone secreted by the intestines after a meal. Novo’s drug, Ozempic, was approved by the FDA for weight loss in 2021. Wegovy, which is the same medicine, had been previously approved to treat diabetes. These injectable medicines lead to substantial weight loss in many patients as well as blood sugar normalization. Eli Lilly’s drug, tirzepatide (marketed as Mounjaro for diabetes and Zepbound for obesity) also incorporates glucose-dependent insulinotropic polypeptide (GIP). The drugs work by decreasing appetite and slowing the absorption of food, making people feel full sooner and improving glucose metabolism. Both Eli Lilly and Novo have ‘second-generation’ drugs to treat obesity in late-stage clinical trials, including oral medications and new drugs delivered by injection.

Obesity increases the risk for many diseases, including type 2 diabetes, hypertension, cardiovascular disease, stroke, joint damage, liver disease, gallstones, some types of cancer and sleep apnea. By helping people lose significant amounts of weight, the medicines can decrease the risk of developing these serious medical issues.

Insurance coverage is improving as research demonstrates an increasing number of end uses for these drugs. Moreover, while the bill for covering these drugs could certainly be enormous, the direct medical bill for obesity alone is estimated to be $260 billion in the US. For example, studies have shown a lower incidence of cardiac events in people who are known to have cardiovascular disease who are using these drugs. Another recent study demonstrated significant improvement in sleep apnea for people on tirzepatide.

The total market could range from $100-200 billion by 2030. Eli Lilly has strong patent protection extending into the 2030s for its key drugs, good economies of scale and an excellent distribution network.

While Mounjaro and Zepbound (the tirzepatide products) have gotten most of the press, Eli Lilly offers a reasonably diverse spectrum of drugs, including a variety of different insulins, Verzenio, which a recent study showed strong data in early-stage breast cancer, and Kisunla (donanemab), a monoclonal antibody for treatment of Alzheimer’s which received FDA approval in July. Another Eli Lilly medication, Taltz, is a monoclonal antibody used to treat moderate-severe plaque psoriasis, psoriatic arthritis and ankylosing spondylitis. Finally, Jardiance (empagliflozin) is a key growth driver also as indications for its use have expanded from diabetes to heart failure and kidney disease. Products are sold world-wide but 60% of revenues come from the US.

Eli Lilly is financially sound but has been quite expensive compared to its own historical trend and its peers. When it reported “disappointing” sales of Zepbound and Mounjaro in Q3, sending the stock down over 10%, we took advantage of the dip to initiate a 1% position in the company as we believe that the long-term investment thesis is intact.

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