The hottest area among healthcare investors right now revolves around advancements being made in weight loss. Known as glucagon-like peptide-1 (GLP-1) receptor agonists, blockbuster drugs such as Ozempic, Wegovy, Mounjaro, Zepbound, and others are completely redefining how care is provided to patients with diabetes or in need of weight management.
While Danish-based pharmaceutical company Novo Nordisk (NVO -0.32%) leads the GLP-1 market (thanks in large part to enthusiasm for its pioneering Ozempic drug), its chief rival Eli Lilly (LLY -1.38%) is quickly gaining steam thanks to surging demand for its Mounjaro and Zepbound formulations.
Here are some big moves Lilly is making to strengthen its position in the weight loss market. Knowing how Lilly is laying the groundwork for long-term sustained growth can help investors determine whether the stock is a good buy at the moment.
3 billion reasons to keep an eye on Lilly
Although demand for GLP-1 treatments is soaring, matching supply and demand has been daunting. While this could be considered a good problem to have, companies need to address and fix such issues. Operating from a position where one can't keep up with supply opens the door to competitive disruption.
Back in April, Lilly acquired a manufacturing facility from Nexus Pharmaceuticals. This deal was a direct response to rising demand for Mounjaro and Zepbound, and investors were encouraged by Lilly's efforts to scale its infrastructure. Earlier this month Lilly doubled down on its manufacturing investment campaign, as the company announced that it's pouring in another $3 billion for further expansion of the Nexus facility. Lilly's focus on augmenting manufacturing capabilities is a good sign and will lead to higher production of its medicines.
But this is just one noteworthy announcement the company has made lately.
Image source: Getty Images.
Lilly is playing chess, not checkers
In addition to Novo Nordisk, Lilly also faces competition from telemedicine company Hims & Hers Health (HIMS -6.77%). While Hims & Hers does not develop its own medications, the company does maintain compounding operations for drugs deemed to be in such high demand that the government allows other companies to help fill the demand. Hims & Hers Health essentially offers patients generic versions of these highly popular drugs, often sold at a much more reasonable price point.
Over the last year, Hims & Hers has managed to make a splash in the weight loss realm by selling compounded semaglutide. Semaglutide is the main active ingredient in Novo Nordisk's Ozempic and Wegovy. It is important to note that compounded medications are not approved by the Food and Drug Administration (FDA) but do meet certain state requirements and safety standards.
The primary value proposition of using a compounded medication is that it can essentially offer a similar by-product of a mainstream treatment, but is far more affordable. In the case of weight loss, patients who lack adequate insurance coverage or may not be able to afford out-of-pocket expenses for Ozempic might choose to use compounded semaglutide from Hims & Hers.
While still a nascent part of Hims' overall business, its foray into weight loss has been met with its own impressive demand trends. With compounded tirzepatide (the main ingredient in Lilly's Mounjaro and Zepbound) potentially coming to the market soon, it's time for Lilly to respond.
Back in September, Lilly lowered the price for Zepbound and made it pretty clear in the press announcement that the driving force was to capture incremental market share -- particularly for those patients who are opting for non-FDA-approved weight loss products.
Similar to its manufacturing investments, Lilly also appears to be doubling down on its strategy to increase the distribution of its weight-loss drugs. On Dec. 11, the company announced a strategic partnership with direct-to-consumer healthcare application, Ro.
Per the announcement, Ro will act as an additional channel for Lilly in order to "streamline access to Zepbound." Through this partnership, Lilly can now tap into Ro's customer base and not only further penetrate its presence in the weight loss market, but also potentially identify new patient needs and cross-sell additional products and services.
So is Lilly a buy?
Since reporting third-quarter earnings on Oct. 30, Lilly stock has gotten a bit volatile -- falling by as much as 14% following the report. As is often the case with earnings reports, it is not sufficient to simply look at top- and bottom-line financials and compare them to Wall Street's expectations. While Lilly posted an earnings miss, one of the driving factors stems from a mismatch between supply and demand for Zepbound and Mounjaro.
This could be a blessing in disguise. Although these mismatches are likely going to continue in the near term, Lilly is clearly taking the issue seriously through its continued investments in more manufacturing capabilities.
The deal with Ro serves as a near-term catalyst for Lilly's weight loss campaign, while the manufacturing facility investments represent a long-term opportunity for the company. Overall, I am encouraged by the decisions management is making and am optimistic about Lilly's long-term prospects.
