Eli Lilly Has Seized the Lead in Anti-Obesity Drugs. Next Up: a Pill.

An Eli Lilly Zepbound injection pen. Lilly’s earnings gains through the end of the decade could be humongous. (Shelby Knowles/Bloomberg)

CVS Health has a new feature for weight loss patients: less weight loss. The company’s pharmacy benefit manager, Caremark, has made Wegovy its preferred obesity-fighter, and dropped coverage of Zepbound. This opposite-of-a-benefit started this month.

Shares of Indianapolis-based Eli Lilly, the company behind Zepbound, have fallen 16% over the past year, not counting dividends. But Denmark’s Novo Nordisk, which makes Wegovy, is down 50%. That’s because Zepbound is overwhelmingly considered the more effective of the two drugs. Even though Novo had a head start hitting the market, Zepbound now has a 60% share, including 75% of treatment starts.

The CVS change will affect around 200,000 Zepbound patients, but overall, Lilly has been adding 500,000 Zepbound patients per month. Investors should expect a dent to revenue growth when the company reports second-quarter financial results on Aug. 7, followed by a reacceleration in the third quarter. The stock selloff hasn’t left Lilly’s valuation particularly lean, but earnings gains through the end of the decade could be humongous. Bulls are predicting big stock returns from here.

I wrote about GLP-1 agonists, as the new generation of obesity drugs is called, three years ago in this space. At the time, Novo already had one called semaglutide, which was selling as Ozempic for diabetes and as Wegovy for obesity. Lilly’s drug, tirzepatide, was selling as Mounjaro for diabetes, but it hadn’t yet been approved for obesity. I pointed out that Lilly’s drug appeared more effective in trials. Today it is sold as Zepbound for obesity. Lilly stock is up 174% since that column, while Novo has underperformed.

In a follow-up column two years ago, I wrote that Lilly looked likely to dominate the market for years to come. It has an even newer obesity med called retatrutide, which appears in trials to be more effective than existing meds. In February, the company said it would release late-stage trial data on that drug this year, which is earlier than previously expected. The bigger development might be Lilly’s orforglipron, which showed promising blood sugar reduction and weight loss in a late-state diabetes trial reported in April, and could hit the market next year, pending approval. It’s a pill. The other drugs require injections.

I’m not smart enough to explain exactly how a GLP-1 agonist works. I gather that it mimics the action of glucagon-like peptide-1, an incretin, or hormone secreted in the gut after eating, which can control blood sugar and increase fullness. Lilly’s Zepbound is called a dual-agonist drug because it also mimics the action of a second incretin, GIP. Retatrutide, Lilly’s developmental drug, adds a third and is nicknamed Triple G.

A head-to-head study found that patients on Zepbound lost an average of 20.2% of their body weight, versus 13.7% for Novo’s Wegovy. Those results were reported last December. CVS’s formulary change was reported by Novo at the beginning of May. In subsequent blog posts, CVS has written that both drugs are effective, that their benefits aren’t tied to helping patients lose as much weight as possible, and that the formulary change will “enable wider, more affordable coverage.” Employers and insurers hire PBMs like Caremark to manage their drug plans.

Both Lilly and Novo have added direct-sales pharmacies with discounted cash-pay options for patients who might otherwise seek knockoff compounded drugs. Lilly sells its starting dose for $349 a month and higher doses at $499, but these prices are for patients willing to draw their own shots from vials, whereas patients with insurance coverage for Zepbound typically receive auto-injector pens. Novo sells Wegovy injector pens to cash-paying patients at $299 for one month, any dose, and $499 a month thereafter. Patients commonly start these drugs at the lowest doses and move up gradually.

In a report this past week, J.P. Morgan analyst Chris Schott wrote that he expects August obesity data for Lilly’s orforglipron pill to put it behind Zepbound but on par with Wegovy in terms of effectiveness and tolerability. The key is that orforglipron is, in pharmaceutical parlance, a small-molecule drug. These are drugs made from chemicals, which tend to be stable and can be taken orally. Aspirin is a small-molecule drug. Large-molecule or biologic drugs are made from living organisms and require fussy storage and administration. Injectable GLP-1s, for example, must be refrigerated.

“With an oral small-molecule profile competitive with injectable GLP-1s, we see a clear role for orforglipron in the maintenance setting, which could help extend the average duration of usage for incretins and could lead to upside to Street estimates for the drug, especially internationally,” Schott wrote.

For Eli Lilly, earnings estimates for this year have moved lower over the past few months, while those for coming years have shifted higher. Last year, the company reported earnings of just under $13 a share, a doubling from the year before. Judging by the seven analysts who have ventured guesses out to 2030, earnings by then could top $55 a share. Shares recently traded at $791. Schott calls them a favorite and predicts a rise to $1,100 in a year, which works out to a gain of 39%.

A rise to that price target would leave shares looking expensive in the near term—for example, $1,100 a share is 30 times the 2027 earnings consensus of around $37. So buyers of the stock here must believe both that growth will be at least as fierce as predicted, and that investors will remain enthused. Index fund holders can content themselves knowing that Lilly is already their 12th-largest weighting.

Worldwide, the obesity drug market stood at $15 billion last year. Morgan Stanley reckons it will hit $150 billion by 2035, including $80 billion in the U.S. alone. Whatever that means for pharma stocks, it might not bode well for sales of packaged foods, restaurant meals, and alcohol. But it could be a good decade for new wardrobes.

Write to Jack Hough at jack.hough@barrons.com