Eli Lilly: GLP-1’s Potential In More Indications Should Unlock Significant Value

Summary:

• I forecast GLP-1 drugs to become the largest-selling pharmaceutical class, with US sales of $150 billion in 2030.
• GLP-1 agonists have shown favorable cardiovascular outcomes and beneficial effects on various organs, and in 2024 there will be data on Lilly’s tirzepatide in NASH, sleep apnea and cardiovascular disease.
• Eli Lilly’s upcoming earnings report and 2024 guidance, on February 6, will focus on Mounjaro and ZepBound, with potential for upward revenue revisions and stock performance.

As I have written regarding Eli Lilly and Company (NYSE:LLY) beginning in August 2023, I expect the GLP-1 drugs to become the largest sell pharmaceutical class ever, with US sales of $150 billion in 2030. I recently listened to a Grand Rounds presentation on the GLP-1s given at a major medical center. I shall discuss the key comments, which I found to be very useful in understanding both the history of incretins as well as the multi-faceted benefits of this revolutionary drug class.

The GLP-1 hormone is a 20 amino acid peptide released in the intestine, and it has a 1-2 minute half-life. This contrasts with Saxenda and Wegovy, which have half-lives of 13 hours and 165 hours, respectively. The incretin effect was first recognized in 1964, and Exendin-4 was identified in the Gila monster in 1992. The incretin effect describes the phenomenon whereby oral glucose elicits higher insulin secretory responses than does intravenous glucose in healthy individuals, and this effect is mediated by GLP-1 in the intestine. It is uniformly defective in patients with Type 2 DM. Exenatide was approved by the FDA in 2005, Saxenda in 2010, Trulicity in 2014 and Ozempic in 2017. Therefore, there has been a multi-decade understanding of the side effects, which primarily relate to the gastrointestinal tract.

The prevalence of diabetes worldwide was 415 million people in 2015, and it is forecast to increase to 640 million people in 2040. The primary cause of death is cardiovascular in over 55% of cases. There have been favorable cardiovascular outcomes trials with Saxenda and Wegovy in Type 2 DM patients. Furthermore, the GLP-1 incretin hormone has been shown to have beneficial effects on the liver (decreased gluconeogenesis and steatosis), brain (decreased food intake, neuroprotection), pancreas (increased insulin biosynthesis, decreased beta cell apoptosis), white adipose tissue (increased lipolysis), kidneys (increased diuresis), heart (cardioprotection) and stomach (delayed gastric emptying). The benefits from the GLP-1 agonists should extend well beyond those from weight loss alone. Additionally, greater improvements are seen with the dual and triple agonists regarding weight loss, glycemic control and hepatosteatosis.

In examining the GLP-1 drugs approved for obesity at this time, Eli Lilly’s ZepBound clearly demonstrates superior weight loss of over 20%, versus 15% for Novo Nordisk’s (NVO) Wegovy. Both companies are developing follow-on oral medications, which should be available in 2026. Lilly also has a triple agonist drug, retatrutide, in Phase 3 clinical study. The Phase 2 trial results, presented in 2023, not only demonstrated even more impressive weight loss but also reported that over 85% of obese patients with fatty liver disease saw a reduction of liver fat to the point they would no longer be classified as having fatty liver disease. In 2024, trials should read out on ZepBound’s benefit regarding obstructive sleep apnea, NASH, and heart failure in obese patients with preserved ejection fraction.

Eli Lilly is scheduled to report fourth quarter 2023 earnings and to provide guidance for 2024, on February 6. While there have been advances in other Lilly pipeline candidates (which are largely underappreciated), the focus will be on Mounjaro (tirzepatide for Type 2 DM) and ZepBound (tirzepatide for obesity). As I discussed in August, I forecast sales of GLP-1s for obesity in the US to reach $150 billion in 2030, at a time when the consensus estimate was $50 billion. This was based on a 30% penetration of the 110 million obese adults at an annual cost of $5,000. While the consensus has since moved up to the $75-100 billion range, if my forecast is correct, there will be continual revenue and earnings estimate increases, which I maintain will drive favorable stock performance. I expect Lilly’s EPS to exceed $50.00 in 2030, driven primarily by at least $75 billion in GLP-1 drug class revenues, as well as contributions from its pipeline in immuno-oncology and gene therapy.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LLY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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