Eli Lilly: Q2 And 2023 Revised Guidance Impressive, But Key Is Wegovy Data

Summary:

• Eli Lilly and Company reported Q2 results exceeding expectations and raised 2023 revenue guidance.
• Novo Nordisk A/S announced positive results for Phase 3 study of GLP-1 drug Wegovy in reducing cardiovascular events.
• GLP-1 therapy for obesity presents a significant market opportunity, with potential for increased coverage and lower costs.

Eli Lilly and Company (NYSE:LLY) reported second quarter results this morning that exceeded expectations, and 2023 guidance was upwardly revised. Specifically, for 2023, management now forecasts revenues in a range of $33.4-$33.9 billion (versus prior range of $31.2-$31.7 billion), and EPS of $9.70-$9.90.

Management also stated that both donanemab (for Alzheimer’s) and Terzepatide (for obesity) should be approved by the end of this year. However, I believe that the most important news item today came from Novo Nordisk A/S (NVO), which announced that the Phase 3 study of its GLP-1, Wegovy, met its main goal of reducing major adverse cardiovascular events by 20% in overweight or obese patients. The trial enrolled 17,604 patients aged 45 or older with established cardiovascular disease and no prior history of diabetes.

I have previously discussed the fact that obesity is a major contributor to chronic medical conditions, including Type 2 diabetes, cardiovascular disease, osteoarthritis, sleep apnea and NASH (non-alcoholic steatohepatitis, also referred to as metabolic dysfunction-associated steatohepatitis). It is estimated that 84% of US healthcare costs are due to chronic diseases, and that they are correlated with age. The US population aged 65 and over is forecast to double by 2060. Although the Wegovy study was in patients with prior cardiovascular disease (and therefore not primary prevention), I expect it will loosen the restrictions placed by insurance companies regarding coverage.

As additional data becomes available in the next few years demonstrating, I believe, primary cardiovascular prevention benefit as well as decreased incidence of other chronic conditions, insurers will have to greatly expand coverage for the GLP-1 class, and some of the cost will be borne by employers and employees. Regarding Lilly, it has a Phase 3 study with oral GLP-1 orflogripron in Type 2 DM obese or overweight patients at increased cardiovascular risk that should complete in 2025, a Phase 2 study with tirzepatide in patients with NASH that should complete in early 2024, a Phase 3 study of tirzepatide in patients with obstructive sleep apnea that should complete in early 2024, a Phase 2 study with tirzepatide in overweight or obese patients with chronic kidney disease that should complete in 2025, and a Phase 3 (SURMOUNT-MMO) study with tirzepatide in obese adults on the reduction in morbidity and mortality, with a focus on cardiovascular endpoints, that should complete in 2027.

Over time, I forecast the cost of GLP-1 therapy to decline to $5,000 annually, from the current $12,000-$14,000 range. I have noted that in the U.S., over 100 million adults are obese, and this equates to a $500 billion opportunity. I maintain that penetration will be at least 30%, as obese patients access the healthcare system through numerous specialists (e.g., primary care, endocrinology, hepatology), they are aware of their condition, and they recognize the benefits of losing weight. I, therefore, expect the GLP-1 category to become the largest selling drug class ever, and I forecast Lilly’s EPS to exceed $50 in 2030. I also note that Lilly is putting its excess cash generation and stock price to good use by making selective acquisitions that could strengthen its pipeline in diabetes, metabolic disease and immunology. Furthermore, I suggest that the research efforts of LOXO in oncology are under-recognized. Finally, the approval of donanemab for Alzheimer’s would enable the company to be involved in another multi-billion dollar underserved market.

I continue to maintain that Eli Lilly and Company is on the verge of a long period of significant drug discovery that will not only (and more importantly) improve lives, but will also lead to a decade of exceeding earnings forecasts, resulting in favorable stock performance. This will be led by its efforts in obesity with three drugs, tirzepatide, orfloglipron and relatrutide, with meaningful contributions from donanemab and immunology drugs. The stock has performed exceptionally well, and I think it will continue to do so.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.