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While there has been plenty of buzz about how successful patients have been in losing weight while taking a new class of obesity medications, there is a growing realization that when people stop taking these pricey drugs, the pounds can creep back on. There was a frank discussion of this on Eli Lilly’s first-quarter earnings conference call on Thursday. “My expectation is many patients may try coming off the drug completely to see what happens,” said Daniel Skovronsky, Lilly’s chief scientific and medical officer, on the call. “Maybe some will be successful maintaining their weight, but many of them will probably experience some regression of their weight back towards baseline. And this could prompt them to come back on the drug. That’s probably natural, and we can expect that.” Lilly manufactures tirzepatide, which is sold under the brand name Mounjaro as a type 2 diabetes treatment. Clinical trials are underway for its use as a weight loss treatment, and the Food and Drug Administration is widely expected to approve it later this year. But when it gets the FDA’s nod, the company’s work won’t be over. Lilly will need to change the way people — and insurers — view weight loss. “On the commercial side, as we launch into the chronic weight management market for tirzepatide, we’ll be very upfront with payers and health-care professionals and consumers that this is a chronic disease and a chronic medication that needs to be adhered to long-term,” said Michael Mason, who heads up Lilly’s diabetes unit, on Thursday. It’s the chronic nature of obesity that will make these drugs so profitable, analysts have said. Some have predicted tirzepatide will become a blockbuster with annual sales of as much as $100 billion by 2035 , by Bank of America’s forecasts. But there is a growing chorus focused on who will bear the burden of these costs. If health insurance companies push back against it, the lofty sales forecasts will not materialize. Already some private insurers that cover the drug will do so only for a set period of time. It’s even worse news under Medicare. The federal health insurance program for the elderly and long-term disabled is banned from covering weight loss medications, although it will fund bariatric surgery. ‘It’s hard to imagine’ For now, both Eli Lilly and the analysts who cover the company remain optimistic. Lilly expects medications to become the standard of care for obesity, and analysts are ratcheting up their near-term sales forecasts for tirzepatide based solely on the trends seen in Lilly’s first quarter with type 2 diabetes patients. “It’s hard to imagine by the end of this decade, that everyone doesn’t just accept that pharmacologic treatment for overweight and obesity should be the standard of care and it will save the health-care system trillions of dollars over time,” CEO David Ricks told analysts. “So you know, that’s our position and we need to fight for that position.” To make this case, Lilly and other pharmaceutical companies in the space, including Wegovy manufacturer Novo Nordisk , are pointing to the assumption that treating obesity and overweight will reduce the occurrence of other comorbidities, producing cost savings for the system. This includes conditions like sleep apnea, heart disease and cancer, among other chronic conditions. The companies are conducting trials that hope to prove this argument but it will take some time to gather enough information to document it. Specifically, Novo and Lilly are looking at whether these drugs can prevent stroke or heart attacks in patients with diabetes. They are also monitoring the impact on sleep apnea and osteoarthritis in the knee. As research continues, there are also other variations of these drugs being studied. This class of medications are often referred to as GLP-1 drugs because they mimic incretin hormones in the body known as glucagon-like peptide-1. Wegovy uses semaglutide in a once a week injection. This same drug is also sold by Novo as the brand Ozempic for diabetes treatment. Mounjaro includes a second incretin hormone, glucose-dependent insulinotropic polypeptide, or GIP. It also is administered by injection once a week. Both companies, as well as others such as Pfizer , Amgen , and Viking , are studying other incretin combinations, including ones that could be administered orally. The current state of play Novo and Lilly have the edge. Novo was the first to win approval for weight loss, but Lilly has been shown to be slightly more effective in clinical trials . Both drugs suppress the appetite of patients and slow how quickly food passes through the gastric system. The news was pretty upbeat for Mounjaro on Thursday. “Mounjaro was the highlight of the quarter with sales coming in ahead of expectations on higher [average selling prices] and with patient access continuing to tick up,” wrote JPMorgan analyst Chris Schott, in a research note. Schott expects the trend to continue in the second quarter and build further in the second half of the year. “And more broadly on the story, LLY continues to represent our favorite pick in the group as we see meaningful upside to Street estimates for Mounjaro and LLY’s broader incretin portfolio over time as well as a favorable setup on the stock heading into a number of important catalysts in 2023 and early 2024,” he said, referring to Lilly’s next-generation incretin drugs and data on its Alzheimer’s treatment, among other factors. Several firms increased their price targets for Lilly shares in the wake of this week’s results. Lilly shares are up 8% year to date. That’s on top of a 32% gain the stock logged in 2022. On Friday, shares set a fresh 52-week high of $404.31. Credit Suisse analyst Trung Huynh expects Lilly shares could hit $420 in the coming year, which is about 6% above where shares closed Friday. Huynh increased his target due to higher expectations for Mounjaro sales this year. Schott has a Dec. 2023 price target of $430. LLY 1Y mountain Eli Lilly shares hit a fresh 52-week high on Friday In the first quarter, Mounjaro tallied $568.5 million in sales, 8% above consensus estimates. Huynh boosted his prediction for the drug’s sales this year to $3.7 billion from an prior estimate of $2.7 billion. One factor driving the drug’s use is an increase in health insurers covering the drug, which can cost about $12,000 a year. As of April 1, about 60% of insurers are covering Mounjaro for type 2 diabetes, up from 40% of insurers at the end of last year. During the first quarter, Morgan Stanley analyst Terence Flynn said Mounjaro’s gross-to-net improved to $243 per script from $136 per script as more insurance companies added the drug to their formularies. Still, there could be a hiccup in the Mounjaro’s growth trajectory. In June, coupons that help patients cover the drug’s cost will expire. With the coupon, type 2 diabetes patients have been paying just $25 a month for the drug. The expiration could force some patients to stop taking it, or slow additional patients from making the move to it from other treatments. This is why it is truly important to realize it is still very early days with this drug. ‘At the precipice’ “We are basically just at the precipice of this market taking off,” Mizuho analyst Jared Holz said on CNBC’s “The Exchange” on Friday. He noted that although investors have been talking about this for a while, the ramp up in revenue is still to come. Novo Nordisk’s experience with Wegovy has been encouraging for what could happen once tirzepatide gains approval for obesity treatment. In mid-April, Credit Suisse upgraded Novo Nordisk , citing the strength it was seeing in its relaunch of Wegovy after manufacturing issues that were causing shortages of the drug were resolved. However, Holz said the current usage of these medications almost makes them “vanity” drugs. “From the numbers that you’ve seen, I’m not really sure that the people that are really most suited for the drugs are actually getting them,” he said. Holz is among those who have expressed concerns that health insurance companies may resist adoption. “$48 billion is a monster number,” Holz said, referring to an annual sales estimate that Bank of America has floated for future Mounjaro sales. “… It just seems like at some point, the payers are going to, you know, obviously be impacted.” —CNBC’s Michael Bloom contributed to this report.
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