Weight loss drugs are gaining more and more importance across industries. 

A three-year study revealed that Tirzepatide (marketed as Mounjaro for diabetes and Zepbound for weight loss) significantly reduces the risk of developing type 2 diabetes by 94% and promotes substantial weight loss, with participants losing up to 22.9% of their body weight. 

The benefits also require ongoing treatment, as stopping the drug led to some weight regain and increased diabetes risk.

Eli Lilly’s (LLY) success with Tirzepatide has driven significant revenue growth, positioning the company as a leader in the weight loss drug market, although the stock may have already priced in these developments.

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Weight loss drugs are becoming more and more important, not just in healthcare, but across various industries, including food and restaurants. 

One of these drugs is Tirzepatide, which is marketed by Eli Lilly (LLY) under the brand names Mounjaro for diabetes and Zepbound for weight loss. 

Tirzepatide made news again with a study that revealed some staggering results. In a three-year trial, the drug reduced the risk of developing type 2 diabetes.

The significance of these findings cannot be overstated. The study, known as the SURMOUNT-1 trial, involved over a thousand adults who were both pre-diabetic and either obese or overweight. 

These individuals were given weekly injections of Tirzepatide at varying doses (5mg, 10mg, and 15mg) over a treatment period that spanned 176 weeks, followed by a 17-week off-treatment period. 

The results were impressive, to say the least. Those on Tirzepatide saw their risk of progressing to type 2 diabetes drop by 94% compared to those who were given a placebo. 

This is a significant breakthrough in the fight against diabetes, a disease that has reached epidemic levels worldwide.

But the benefits of Tirzepatide didn’t stop there. Beyond reducing the risk of diabetes, the drug also proved to be highly effective in promoting weight loss. 

Participants on the highest dose of Tirzepatide (15mg) experienced an average weight reduction of 22.9%. To put that in perspective, those on the placebo saw only a 2.1% reduction in body weight. 

This kind of weight loss can have profound implications for overall health, reducing the risk of a host of other conditions linked to obesity, such as heart disease and stroke.

However, the study also highlighted the importance of continued treatment. During the 17-week off-treatment period, participants who stopped taking Tirzepatide began to regain some of the weight they had lost and saw a slight increase in their risk of progressing to type 2 diabetes. 

Even so, the overall reduction in risk remained significant at 88% compared to the placebo group. This suggests that while Tirzepatide is highly effective, its benefits may be best maintained with ongoing treatment.

Eli Lilly’s success with Tirzepatide is already paying off in a big way. In their Q2 2024 earnings report, the company announced a 36% year-on-year increase in revenues.

This growth was largely driven by Tirzepatide, which is quickly becoming one of the company’s most important revenue streams.

Looking ahead, Eli Lilly issues guidance for 2024 for $45.4bn – $46.6bn – which is $3bn more than expectations set after Q1 earnings were reported in May.

The company has already established itself as a leader in this space, and the success of Tirzepatide only strengthens its position.

With the obesity epidemic showing no signs of slowing down, the demand for effective weight loss solutions will continue growing, and Eli Lilly is well-positioned to capitalize on this trend.

However, the market may already be pricing in these positive developments with the company’s Uniform return on assets ”ROA” expected to expand to 50% by 2028.

So while these results are impressive, they might not be enough to push the stock much higher.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research