Forget Zepbound: Eli Lilly's Next Billion-Dollar Weight-Loss Drug May Be Even Better

Eli Lilly (NYSE: LLY) has been posting incredible sales and earnings growth in recent quarters, thanks in no small part to its chronic weight management medicine, Zepbound. This therapy now generates higher sales than its main competitor, Wegovy, which has allowed Eli Lilly to take the top spot in the fast-growing anti-obesity market. However, Eli Lilly isn't just sitting on its laurels. The pharmaceutical leader is actively developing newer and better medicines in its core area of expertise. And recent clinical trial results for an investigational chronic weight management drug suggest it might have found its next gem. Let's look into what this means for investors.

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Best-in-class efficacy

Zepbound's superior efficacy compared to Wegovy is partly because, while the latter mimics the action of the GLP-1 hormone (which helps regulate blood sugar and satiety), the former goes further. Zepbound is a dual GLP-1/GIP agonist. GIP also helps regulate blood sugar. Activating GLP-1 and GIP receptors simultaneously, as Zepbound does, appears to produce greater weight loss and metabolic benefits than activating GLP-1 alone. That brings us to retatrutide, Eli Lilly's next-gen weight-loss medicine that takes this concept even further by mimicking the action of three gut hormones: GLP-1, GIP, and glucagon.

This approach might deliver efficacy even stronger than Zepbound, and Eli Lilly just provided solid evidence for that theory. The company posted phase 3 results for retatrutide. The study enrolled overweight or obese patients who also had at least one weight-related comorbidity. Patients on the highest dose of the medicine lost an average of 28.3% of their body weight over 80 weeks -- versus just 2.2% for those in the placebo group.

Although it is always hard to compare across studies, retatrutide's results are far better than those of Zepbound in similar clinical trials. In fact, you'd be hard-pressed to find a single medicine that has delivered this kind of weight loss, whether it's Wegovy or Novo Nordisk's next-gen therapy, CagriSema. Retatrutide seems to have gone where none of its competitors have before. That's great news for Eli Lilly.

There is plenty of upside left

Will retatrutide simply cannibalize Zepbound's sales? Not at all. Eli Lilly will likely target underserved segments of the weight-loss market with this newer medicine, just as it did with its recently launched oral anti-obesity drug, Foundayo. This weight-loss pill is attracting new patients, with roughly 80% of prescriptions issued to those who had never taken GLP-1s before, according to management. The market is arguably still underpenetrated. Here's why we can say that with some confidence, that is, besides the fact that sales of Eli Lilly's Zepbound continue to grow rapidly.

A recent study found that the prevalence of obesity in the U.S. may be about 70%, much higher than the roughly 40% estimated by the U.S. Centers for Disease Control and Prevention (CDC).

The CDC's definition relies on BMI (Body Mass Index), a metric that has several drawbacks. Researchers seeking to address the shortcomings of BMI added other measures and arrived at the 70% figure. Whichever estimate we choose, a large number of U.S. patients who could benefit from weight-loss medicines have yet to start treatment, since only 12% of adults in the country were on GLP-1s as of last year, with just 18% ever having taken this category of drugs.

So, there remains a vast untapped market that retatrutide will help Eli Lilly fill. The pharmaceutical company will likely target patients with very high BMIs who need more aggressive weight loss. As Eli Lilly pointed out, 45.3% of patients taking retatrutide's highest dose in the study achieved weight loss greater than 30%, a result normally seen only with bariatric surgery. Further, beyond retatrutide, Eli Lilly has several other pipeline candidates in this area, not to mention many more in other areas.

All of this suggests that Eli Lilly is likely to retain its lead in the weight-loss space while continuing to deliver strong financial results. The stock may not have peaked yet, given its prospects in this market and others. It is still time to invest in Eli Lilly and hold its shares for the long term.

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