JPMorgan Chase: Eli Lilly management believes that oral medications will change the landscape, and the moats of "weight loss giants" are underestimated by the market

On March 15th, JPMorgan Chase released a report stating that the market has underestimated the competitive advantages of the "weight-loss duo" Eli Lilly and Novo Nordisk AS. The "duo" has a strong and rich research and development pipeline in the field of diabetes and obesity treatment, profitability with high rebates, and production bases with billions of dollars in investment. These factors make it difficult for new competitors to enter the market, thereby enhancing the "duo's" moat.

In addition, Eli Lilly's drug orforglipron is more easily accepted by consumers because oral administration is more convenient than traditional injection treatments. In developed countries, approximately 20-25% of type 2 diabetes patients prefer oral medications. Moreover, oral drugs generally have lower production costs than injectable drugs, thereby reducing overall treatment costs. This will bring significant market space for Eli Lilly, and JPMorgan Chase expects Eli Lilly to have better-than-expected performance in the future and become a leader in the weight-loss and diabetes market.

Market Underestimates the Moat of the "Weight-loss Duo"

JPMorgan Chase believes that the "weight-loss duo" has certain competitive advantages, which the market underestimates their moat. The main reasons include three aspects:

(1) "Discount Barrier" in the U.S. Market: In the U.S. market, some drugs produced by the "duo" have high sales and gross profit margins. They usually provide rebates to payers such as insurance companies to ensure that their drugs are included in insurance plans, thereby promoting drug sales. Currently, the "duo" has established a strong position in the market and can provide high rebates.

However, new entrants to the market need to provide equally high or higher rebates to attract support from payers (such as health insurance), which may affect their profitability. Therefore, this "discount barrier" makes it difficult for new competitors to enter the market, thus maintaining the market position of the "duo."

(2) Heavy Asset Barrier: In the weight-loss and diabetes drug market, establishing a new production line not only takes 3-4 years but also requires billions of dollars in investment. For example, Novo Nordisk AS's controlling shareholder spent $11 billion to acquire three major bases to accelerate the production of Wegovy and Ozempic.

This heavy capital investment is a competitive advantage for the "duo" because it deters many potential competitors, such as Amgen and Roche (companies developing similar drugs). Other competitors see that even with substantial upfront investment, success is not guaranteed, so they can only sigh and leave.

(3) Research and Development Advantage: The products of the "duo" may not only be used to treat diabetes and obesity but may also be approved for a range of other diseases or health conditions. For example, on March 9th, Novo Nordisk AS's "weight-loss miracle drug" semaglutide was approved by the U.S. FDA for use in heart treatment, demonstrating the significant importance of "additional medical value." Moreover, if the "two giants" successfully add more indications and research results to their product labels in the coming years, this will further solidify their market position. For competitors, not only do they need to develop new drugs, but they also need to prove through head-to-head (H2H) comparative studies that their products are at least as effective as those of the "two giants". However, these studies require a large amount of resources, time, and funding, and the uncertainty of success is also high, undoubtedly increasing their research and market risks.

Furthermore, if the products of the "two giants" have already established a strong market position and brand reputation, new competitors may find it difficult to gain market recognition and acceptance even if their products perform well in research.

In response to this, JPMorgan Chase stated that although new competitors such as AMGN and Viking may enter the market, their market share will be less than 10%, and the "two giants" will still dominate the weight loss and diabetes market. Additionally, other market analysts may underestimate the difficulty for new drugs to enter the weight loss market and gain market share unless potential competitors can develop distinct new oral medications.

Eli Lilly Management Believes Oral Medications Will Change the Landscape

Eli Lilly has a rich pipeline in the development of new drugs. Currently, Eli Lilly is actively investing in the entire obesity treatment pipeline rather than focusing on individual drugs or treatment methods to increase the chances of success and meet the needs of different patients.

Among them, orforglipron is an oral therapeutic drug for type 2 diabetes, and Eli Lilly has high expectations for orforglipron. Eli Lilly believes that it can not only significantly change the current landscape of the weight loss market, but also meet the needs of different markets and patient groups. Eli Lilly also has confidence in its safety aspects, stating:

First, the drug orforglipron can be launched in developing countries (such as India, Brazil), markets that have not been fully developed, bringing a significant increase in market capacity.

Second, as an oral medication, orforglipron can meet the needs of developed markets. In developed countries, approximately 20-25% of type 2 diabetes patients prefer oral medications, as this method of administration is usually more convenient than injections and is more easily accepted by consumers.

Third, in terms of cost, the oral formulation of orforglipron usually has lower production costs than the injectable formulation, thereby reducing the overall treatment costs.

Fourth, in the drug approval process, safety is an important consideration, Eli Lilly emphasizes the safety of orforglipron and states that orforglipron has no potential side effects on the liver In addition to orforglipron, Eli Lilly is developing multiple potential obesity treatment drugs at different stages of clinical trials to meet the needs of different patient groups:

• Retatrutide is a drug in the late-stage development (Phase III clinical trial) that Eli Lilly hopes will become a new option for obese patients.
• Bimagrumab is in Phase II clinical trials and is a non-GLP-1 (glucagon-like peptide-1) activin inhibitor. It may help maintain muscle mass while losing weight. Ideally, the drug will demonstrate good tolerability and can be used in combination with GLP-1 drugs to enhance weight loss effects.
• Mazdutide is a dual-action drug combining GLP-1 and glucagon, currently in Phase II clinical trials.

JPMorgan Chase is optimistic about the market prospects of Eli Lilly's orforglipron drug. The reason is that GLP-1 drugs are usually administered by injection, while orforglipron, as an oral drug, provides convenience for patients who prefer oral treatment over injections, expanding the accessibility of orforglipron. Therefore, JPMorgan Chase predicts that the launch of orforglipron may bring Eli Lilly unexpected market share, drive higher-than-expected sales growth for Eli Lilly in 2027 and beyond, and establish itself as a leader in the obesity and diabetes market