Eli Lilly Scores Another Major Win: Time to Buy?

Can anyone stop Eli Lilly (NYSE: LLY)? The pharmaceutical leader has established itself as the leader in the fast-growing weight loss market. And although many other drugmakers are hot on its tail, Lilly has consistently demonstrated that, in addition to having the top approved product in this category, it also has pipeline candidates that outshine those of its competitors.

The healthcare giant recently posted even more positive late-stage results for another anti-obesity product in development. Let's look into the data and what it means for the stock.

"Triple G" for the win

Eli Lilly's tirzepatide (sold as Zepbound for weight loss) owes its efficacy partly to the fact that it mimics the action of two gut hormones, GLP-1 and GIP, involved in regulating satiety and blood sugar levels. Activating two separate pathways to induce the feeling of fullness and help control weight was a groundbreaking achievement for Lilly; tirzepatide is still the only dual GLP-1/GIP medicine approved by the U.S. Food and Drug Administration.

Image source: Getty Images.

Now, Eli Lilly has gone one step further with retatrutide. The medication, in addition to GLP-1 and GIP, also mimics a third hormone named glucagon, earning it the nickname "triple G."

Thanks to its novel approach, retatrutide is proving extremely promising, as recent top-line data from a phase 3 study shows. Eli Lilly reported that retatrutide led to an average weight loss of 28.2% at the highest dose in 68 weeks. While it's always challenging to compare results across clinical trials, it's worth noting that in one study tirzepatide achieved a mean weight loss of just 20.2% over 68 weeks.

Retatrutide seems far more effective. But there's more: The medicine is being touted as an excellent option for people with high body mass indexes (BMIs). A BMI above 35 is considered severe or morbid obesity, and it comes with a range of other problems, including knee osteoarthritis. These are the patients Eli Lilly will likely target with retatrutide.

Not only did the medicine lead to significant weight loss, but it also helped reduce knee pain in patients, with 1 out of 8 subjects completely free from it by the end of the trial. Lilly plans to release data from seven additional phase 3 clinical trials of retatrutide next year.

What it means for the stock

Eli Lilly's shares did not jump significantly on these developments. Perhaps that's because the market had already somewhat baked retatrutide's success into the company's stock price. Indeed, Lilly's shares don't look cheap, at least at first glance -- they trade at about $1,000 each and, more importantly, with a forward price-to-earnings (P/E) ratio of around 32, compared to the average of 17.8 for the healthcare sector.

The market clearly expects great things from Eli Lilly -- and the pharmaceutical giant continues to meet those expectations. Retatrutide's results were the latest example. Before that, it was the company's third-quarter earnings. Revenue was $17.6 billion, an impressive year-over-year top-line growth of 54%. Tirzepatide is already the world's best-selling medicine and is on track to generate more than $30 billion in sales this year.

Before Lilly's latest quarterly update, it also impressed the market with orforglipron, an oral weight loss candidate that performed well across phase 3 studies in diabetes and obesity. These wins position Eli Lilly to perform exceptionally well over the next five years, a period during which the company should make further progress in its pipeline and launch new medicines. Once we factor in its growth prospects, the stock looks reasonably valued.

Yes, there are plenty of other drugmakers looking to steal Lilly's market share in weight loss. But not one has yet produced late-stage clinical trial results that look comparable to those for retatrutide or orforglipron.

Beyond its core therapeutic area, there are other great reasons to invest in the pharmaceutical leader. Eli Lilly is making important strides in immunology and oncology. It's building a supercomputer that can harness the power of artificial intelligence (AI) to accelerate the drug development process. And the stock is a great option for dividend growth investors.

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.