Should Eli Lilly Investors Worry About Its Newest Rival -- From Within?

Eli Lilly (NYSE: LLY) has become the leader in a market marching toward the $100 billion mark. I'm talking about the weight-loss drug market, expected to reach that level early next decade from a value of about $40 billion today. This is thanks to a type of product you might have heard about in recent times: the GLP-1 drug.

Lilly is the maker of tirzepatide, sold as Mounjaro for type 2 diabetes and as Zepbound for weight loss -- though both have been prescribed for the weight loss indication. Doctors and patients love this class of drugs as the products have proven themselves to be safe, effective, and easy to self-administer. All of this has resulted in high demand and enormous revenue growth for Lilly.

But this company isn't alone in the space. It faces Novo Nordisk, which recently launched an exciting new product, as well as up-and-coming players that are pushing candidates through clinical trials -- from pharma giant Pfizer to biotech company Viking Therapeutics. And now, more competition may come from somewhere much closer. Should Lilly investors worry about its newest rival -- from within?

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The GLP-1 story so far

Before considering this in-house rival, though, let's quicky catch up on the Lilly weight loss drug story so far. Novo Nordisk actually won approval for a GLP-1 drug before Lilly and built leadership in the market. You may have heard of Novo's Ozempic for type 2 diabetes and Wegovy for weight loss. But over the past year, Lilly slipped ahead with its products -- this may be at least partially due to a head-to-head study showing Zepbound resulted in greater weight loss than Wegovy.

GLP-1 drugs work by stimulating hormonal pathways involved in appetite control and the management of blood sugar levels. And the four products I've mentioned so far are injectables, self-administered weekly.

Unsurprisingly, Lilly's drugs have become blockbusters, and in the recent quarter, Mounjaro and Zepbound together brought in a total of more than $12 billion in sales.

Considering the demand for these drugs, other companies are eager to join the market. I mentioned two examples above, and this, as well as competition from Novo, represents a risk for Lilly. Novo late last year won approval for oral Wegovy, and demand has been soaring.

But could the biggest risk to Zepbound sales actually come from Eli Lilly itself? Just recently, Lilly, like Novo, won approval of an oral weight loss drug. The U.S. Food and Drug Administration on April 1 gave the nod to Foundayo (known in clinical trials as orforglipron). This GLP-1 pill is taken daily with or without food and water.

Foundayo's first month of sales

So far, the news is bright. During Lilly's earnings call on April 30, the company said that 20,000 patients had been treated so far. While that's fantastic, should investors worry that this in-house rival -- Foundayo -- may hurt sales of Zepbound?

It's true that some patients, preferring the convenience of a pill, could switch to Foundayo from Zepbound. That said, Foundayo isn't just a different brand name -- it's actually a different drug. And this means patients who are doing well on Zepbound may not want to shift to another product.

So, while Foundayo may weigh somewhat on Zepbound's sales, this may be limited. Meanwhile, Foundayo actually may be on the road to broadening the potential audience for GLP-1 drugs. In its first month of sales, 80% of prescriptions were for individuals new to the GLP-1 class of drugs. Novo confirmed this trend, noting that most of the people who've started taking the Wegovy pill are new to GLP-1 drugs.

All of this means that Foundayo may not "replace" Zepbound but instead offer Lilly a new source of growth. Meanwhile, the pharma giant continues to develop other weight loss candidates -- such as late-stage candidate retatrutide, which looks promising for patients with greater weight loss needs. So, Lilly's newer drugs may not hurt older ones. Instead, Foundayo and others to come are likely to expand the patient group -- and therefore add to growth. All of this means investors shouldn't see Foundayo as a threat, but instead as an exciting new opportunity.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Pfizer. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.