Could Retatrutide Be Worth $10 Billion to Eli Lilly?

Eli Lilly (NYSE:LLY) is posting excellent financial results, with tirzepatide, a medicine that has earned indications for diabetes, weight management, and obstructive sleep apnea (OSA), currently the company's biggest growth driver. Tirzepatide was a breakthrough. It became the first approved therapy to mimic the actions of the GLP-1 and GIP gut hormones, a mechanism of action that likely contributes to its greater effectiveness than its biggest competitor, semaglutide.

However, Eli Lilly has several pipeline candidates in this area that could strengthen its position, and one of them is retatrutide. This compound isn't approved yet, but it is already generating plenty of buzz, with some analysts expecting it to generate up to $25 billion in peak annual sales. Let's find out why there is so much excitement surrounding retatrutide and what investors should do about it.

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Excellent clinical trial data

Retatrutide goes one step further than tirzepatide by mimicking the action of three gut hormones: GLP-1, GIP, and glucagon. In theory, that makes retatrutide a differentiated asset that may push the boundaries of what approved weight loss medicines can do. This is no longer just a theory. Retatrutide has been successful in several Phase 3 clinical trials that enrolled patients with obesity or obesity and some obesity-related conditions.

For instance, in one study, the therapy led to an average weight loss of 28.3% in 80 weeks in obese patients. In another study, it helped overweight or obese patients with diabetes (for whom it is harder to lose weight) lose an average of 20.8% of their body weight over 80 weeks. It has also produced positive Phase 3 results in patients with obesity and OSA or knee osteoarthritis pain, as well as patients with severe obesity and cardiovascular disease. Retatrutide has been so impressive that there is already a black market for it, despite the medicine not yet being approved. Eli Lilly has had to seek legal action to stop the illegal sale of its next-gen weight-loss medicine.

Retatrutide's addressable market

Retatrutide could target a large pool of patients with obesity and other indications, given its Phase 3 results and ongoing clinical trials in areas such as chronic low back pain and metabolic dysfunction-associated steatotic liver disease. However, it could cannibalize tirzepatide's sales. Even so, there are several reasons retatrutide could be worth so much to Eli Lilly. Let's consider two.

First, it won't just compete with tirzepatide. There is unquestionably some overlap between the two. We should expect some patients currently on tirzepatide to switch to retatrutide, once it's approved. But retatrutide seems especially suitable for a specific subset of people with obesity, including those with severe, treatment-resistant cases. Eli Lilly has already made it available on a limited expanded-access basis to patients who meet certain criteria, including having refractory obesity. In other words, retatrutide should help expand the market. It will also target indications that tirzepatide won't.

Second, if tirzepatide loses $1 of sales to retatrutide, at least that stays within Eli Lilly's ecosystem. But if tirzepatide loses $1 of sales to a drug from one of the company's competitors, that's a worse outcome for the pharmaceutical giant. Retatrutide should help Eli Lilly retain some patients who might otherwise have switched to competing medicines as the weight-management landscape evolves and new drugs enter the market. That's another reason it is an important asset for Eli Lilly.

What is retatrutide worth?

Eli Lilly plans to submit an application for regulatory approval for retatrutide in the first quarter of 2027. There is a high chance it will receive approval without a hitch, but it could later encounter clinical setbacks in ongoing studies. So, we have to estimate not only how much retatrutide could generate in sales in every indication, but also the probability that it will ace relevant clinical trials and eventually earn approval.

These complications partly explain why projections for retatrutide's sales vary wildly, but given the medicine's sales potential and the weight-loss market's incredible current pace of growth, the medicine is likely worth over $10 billion to Eli Lilly right now. It should help the company maintain its leadership in its core therapeutic area and expand its streak of excellent financial results. So, while the bears continue to expect the stock to decline significantly, investors should stay put: Eli Lilly stock is still a buy.

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.