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Why Eli Lilly Stock Is Soaring Today, While Novo Nordisk and Viking Therapeutics Slide

Source The Motley Fool

It's Thursday morning, 11:50 a.m. ET -- and Eli Lilly (NYSE: LLY) stock is off to the races!

This morning, the Indianapolis-based pharmaceutical giant announced that its new GLP-1 weight loss pill, orforglipron, has "demonstrated statistically significant efficacy results and a safety profile consistent with injectable GLP-1 medicines in successful [ACHIEVE-1] Phase 3 trial."

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Lilly shares are up 14.2% in response to the news, while shares of its rivals in the GLP-1 weight loss market, Novo Nordisk (NYSE: NVO) and Viking Therapeutics (NASDAQ: VKTX), are falling 7.1% and 1.7%, respectively.

Eli Lilly's new GLP-1 wonder drug

Earlier this week, as you may recall, Pfizer (NYSE: PFE) admitted defeat in its own effort to develop a GLP-1 weight loss pill, halting research on its danuglipron once-a-day oral drug after a patient in its study experienced a "potential drug-induced liver injury." Lilly's new drug, on the other hand, seems to have no such side effects and plenty of good effects.

As Lilly described in its press release, orforglipron is "the first oral small molecule glucagon-like peptide-1 (GLP-1) receptor agonist, taken without food and water restrictions, to successfully complete a Phase 3 trial." Clinical data from this 40-week trial show that orforglipron helped reduce A1C blood sugar levels in patients "by an average of 1.3% to 1.6%." At the same time, the once-daily oral pill helped reduce patients' weights by an average of 7.9% over the course of the trial.

What's more, Lilly points out: "Given that participants had not yet reached a weight plateau at the time the study ended, it appears that full weight reduction was not yet attained." So, orforglipron has the potential to deliver even greater weight loss when given more time to work.

This all suggests that orforglipron is useful for both treating diabetes and weight loss -- and with no needles required.

Image source: Getty Images.

What this means for Lilly

Lilly notes that the ACHIEVE-1 study was only the first of seven planned Phase 3 clinical studies it will conduct to prove the GLP-1 drug's safety and effectiveness for treating both diabetes and obesity, with no need for injections. The company is therefore still a ways away from commercializing the drug.

That said, completing the six remaining trials should give Lilly plenty of time to ramp up production capacity, such that it will be able "to launch orforglipron worldwide without supply constraints" -- and be first in line to do so with an oral, once-a-day GLP-1 pill.

What this means for Novo Nordisk and Viking Therapeutics

Suffice it to say this would be a huge accomplishment for Lilly, expanding the addressable market for GLP-1 drugs (through ease of delivery, with no needles required) while promising that Lilly would have this market entirely to itself -- at least at first.

Unfortunately, what's good news for Eli Lilly is probably bad news for investors in Novo Nordisk and Viking Therapeutics, both of which lag Lilly in the race to develop their own easy-to-take GLP-1 diet pills. (Both Novo and Viking are developing such pills; they're just not as far progressed in their work as Lilly. Currently, Novo has only injectable GLP-1 drugs on the market -- Ozempic and Wegovy -- and Viking has neither.)

Lilly's insistence on its intention to permit no supply deficit with the new wonder drug also indicates the company doesn't intend to give an opening to Hims & Hers Health (NYSE: HIMS) to horn in on the business with a copycat oral GLP-1 pill, as the smaller pharmaceutical company successfully did when filling a gap in supply of Lilly's Mounjaro and Zepbound injectable GLP-1 drugs.

Is Eli Lilly stock a buy?

Long story short, investors in Eli Lilly stock are right to be excited today. I can't say I'm enthusiastic about the stock's sky-high 60-plus price-to-earnings valuation. Then again, for the time being at least, Eli Lilly is running away with the GLP-1 market and leaving Novo Nordisk, Viking Therapeutics, and even Hims & Hers in the dust.

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

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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