This New Zepbound Study Could Be Great News for Eli Lilly Investors

Eli Lilly (NYSE:LLY) has performed well in recent years thanks to its strong position in the GLP-1 market. However, it has encountered some obstacles, one of which is spotty (at best) insurance coverage for Zepbound, its GLP-1 weight-loss medication. The drug's out-of-pocket monthly price is high, and the fact that a significant portion of patients can't rely on insurance to cover the cost has arguably limited its potential.

But what if Eli Lilly could make progress in expanding insurance coverage for Zepbound? The company recently released results from a real-world study that could help it make its case before third-party payers. Here's what investors need to know.

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Does Zepbound help reduce healthcare costs?

Health insurance companies are more likely to cover treatments when there is evidence that they save healthcare costs. The logic is straightforward. If a drug costs $1,000 per patient annually, but the data show that those who take it incur $4,000 less in medical costs, insurers may actually save money by picking up the tab for the medicine.

That brings us to a recent study conducted among patients who were taking Zepbound for weight management. It enrolled patients over 55 years of age who met the criteria for Zepbound (i.e., a BMI above 30 or above 27 with at least one weight-related comorbidity).

The study found that, compared to similar patients in the same age group who were not on the weight-loss therapy, those on Zepbound incurred up to 15% lower healthcare costs six months into the study. After a year, the difference was up to 38% lower for patients on Zepbound, who had lower rates of hospital admissions and emergency visits than their peers not taking the drug.

Based on the results of this study, insurers may want to reconsider covering Zepbound. Now, there are several caveats to keep in mind. Here’s one of the most important. In estimating healthcare cost savings for patients on Zepbound, the study did not include the drug's costs. Still, it's an additional data point that could move the needle in Eli Lilly's favor as it continues to try to expand insurance coverage for Zepbound. If it can achieve that goal, it could make a massive difference for the company.

According to some estimates, about half of patients on either Zepbound, Mounjaro (which has the same active ingredient), or Foundayo -- Eli Lilly's oral GLP-1 -- pay out of pocket. Imagine if Eli Lilly could significantly expand coverage. We would expect even stronger demand for these medicines, leading to meaningfully higher sales. Many patients even buy compounded versions of Zepbound on telehealth platforms because they are cheaper. This is money Eli Lilly is leaving on the table, much of which it would bring into its ecosystem with better coverage.

What this means for Eli Lilly's future

Will the study Eli Lilly ran lead to expanded health insurance coverage for Zepbound? We don't know for sure. However, even without that, the pharmaceutical giant looks like an attractive stock. Consider the company's second-quarter results. Eli Lilly's revenue increased by 48% year over year to $23 billion. Mounjaro's sales were $9.9 billion, up 91% compared to the year-ago period. Zepbound's revenue came in at $4.9 billion, up 46% year over year.

Eli Lilly posted excellent results, even by its high standards, and the company's shares jumped following its earnings update. The company remains in an excellent position to ride the weight loss tailwind over the next five years. Its approved portfolio is second to none, and it boasts several exciting pipeline candidates, including retatrutide, which posted some of the most impressive weight loss efficacy numbers in the industry.

Further, Eli Lilly's portfolio beyond its diabetes and weight loss medicines is impressive. The company has products with rapidly growing sales -- as well as attractive pipeline candidates -- across oncology, immunology, neuroscience, and more. Eli Lilly isn't just a GLP-1 stock, and that's one of the factors that make the company attractive. In short, while expanded coverage for Zepbound would be great news, investors shouldn't wait for that to initiate a position.

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.