Portfolio holding Eli Lilly (LLY) offered fresh insight over the weekend into its new type 2 diabetes drug Mounjaro and the exciting prospects of using it to treat obesity.

Mounjaro is an FDA-approved diabetes drug, an important product for Lilly's revenue pipeline. This deepening commercial pipeline is one important reason why we own the stock. Lately, an additional use for this drug has been emerging - the obesity treatment market. Mizuho estimates Mounjaro sales of more than $14 billion by 2030 and sees more upside potential than downside risk to that estimate given the drug’s performance so far.

What’s new

Over the weekend, Eli Lilly presented data from its phase 3 Surmount-1 trial at the annual meeting for the American Diabetes Association, showing robust weight loss among participants and solid tolerability. Results also were published in the New England Journal of Medicine.

Executives in the company’s diabetes division discussed those obesity-trial results Tuesday on a call with analysts. They also offered details about the rollout of Mounjaro since it received Food and Drug Administration approval to treat diabetes in May.

The big takeaway

The phase 3 trial data confirms what we already knew from the top-line weight loss results in April. The drug — which also is called tirzepatide — offers tremendous promise as a way to treat obesity, a common disease among Americans that also increases risk of other health conditions such as high blood pressure, heart disease and type 2 diabetes. The number of Americans who are technically considered obese is expected to grow in the coming years.

Here’s what Eli Lilly’s trial found:

• Participants on the highest dose (15 mg) of the drug lost an average 22.5% of their baseline body weight, equal to about 52 pounds, after 72 weeks.

• What’s more, about 40% of patients on the 15-mg dose lost at least 25% of their body weight compared to under 1% of those in the placebo group.

• Patients on the middle dose (10 mg) saw a 21.4% average weight reduction, or a 49-pound reduction.

• Those in the placebo group reported a 2.4% reduction, on average, or about 5 pounds.

• The baseline weight for participants, on average, was 231 pounds.

Another important result relates to the drug’s tolerability. On the Tuesday analyst call, Jeffrey Emmick, Lilly’s vice president of diabetes product development, said tirzepatide’s safety profile is similar to obesity drugs in the same category that have been approved. The side effects, which include nausea and vomiting, also are similar to what Lilly saw during the drug’s type 2 diabetes trial called Surpass, according to Emmick.

• He said it is “noteworthy” that discontinuation rates for trial participants on the drug ranged between 14% to 16%, depending on dosage, while those in the placebo had a discontinuation rate north of 26%.

• That goes to show “the limited efficacy of diet and exercise alone” in generating weight loss that participants find satisfying enough to remain in the trial, Emmick said.

What to look for next

Investors want information on when the company will ask U.S. regulators to approve the drug specifically for obesity, and Eli Lilly said Tuesday to expect an update in the second half of the year.

• Michael Mason, president of Lilly Diabetes, told analysts the company intends to speak with regulators about the possibility of submitting for approval using both data from the Surmount-1 trial along with data from the Surpass trial.

• Mason said that while weight loss was not the main goal of the Surpass trial, it was a secondary endpoint given 80% of participants had a body mass index (BMI) of 27 and a comorbidity, or a BMI greater than 30. A BMI above 30 is considered obese.

• “So we have a large data set,” Mason said. To us, this appears to suggest Lilly may not have to wait for additional results from other phase 3 trials involving the drug before submitting a supplemental Biologics License Application to the FDA.

Eli Lilly execs declined to share any of their thinking into potential pricing for tirzepatide as an obesity treatment, saying Tuesday it was too early to get into that.

What analysts are saying

A number of Wall Street analysts expressed satisfaction with the data Lilly presented at the ADA conference over weekend.

Morgan Stanley analysts titled their note to clients, “Tirzepatide ushering in a new era of obesity treatment,” while reiterating their overweight rating on shares of Eli Lilly. Morgan Stanley projects sales of tirzepatide to reach $17.2 billion in 2030, with about $12.2 billion of that being for diabetes and $5 billion for obesity.

Goldman Sachs analysts now project peak sales of tirzepatide for obesity to be $7 billion — raising their forecast upward from $6.5 billion “based primarily on an increase to our probability of success factoring for the product, based on the recent approval for type 2 diabetes.”

After reviewing Eli Lilly’s full data, Goldman analysts said they still believe tirzepatide looks more effective than a similar obesity drug already on the market, Novo Nordisk’s Wegovy.