Lilly Reports Excellent Phase 3 Obesity Data

In tandem with reporting better-than-expected first-quarter earnings, Eli Lilly LLY reported excellent phase 3 tirzepatide data in obesity. The positive updates will increase our fair value estimate, as Lilly continues to string together an impressive series of pipeline advancements that strengthens its wide moat. The tirzepatide obesity data could support a best-in-class drug in both diabetes and obesity. While diabetes data for the drug has supported regulatory filings (approval is expected later in the year), the strong obesity data suggests a major new label expansion in 2023 or 2024. With roughly 20% weight loss at the higher 10 mg and 15 mg doses, tirzepatide looks potentially better than Novo Nordisk's Wegovy (17%-18% weight loss). The strong efficacy combined with a solid safety profile should support improved payer coverage in obesity. We expect data from the final three obesity phase 3 studies of tirzepatide in 2023, enabling a late 2023 filing, but the strong initial data could support a filing later this year in obesity. In the quarter, Lilly posted a strong sales gain of 15%, but COVID-19 treatments helped support close to half of the gain. While we expect COVID treatment sales to fall rapidly as the pandemic recedes and other Covid treatments emerge, the underlying growth of Lilly should strengthen over the next three years with very limited patent losses, strong sales potential from currently marketed drugs, and several new product launches. We are most bullish on continued gains for diabetes drugs Trulicity (market share gains) and Jardiance (expansion into heart failure) and cancer drug Verzenio (expansion into adjuvant therapy). On the pipeline side, we continue to expect major blockbuster sales from Alzheimer's drug donanemab (approval likely in 2023, with key efficacy data to support sales ramp in mid-2023). Also, we expect 2023 approvals for immunology drugs lebrikizumab and mirikizumab and cancer drug pirtobrutinib based on strong late-stage data.

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