This big move by Eli Lilly may solve the weight loss drug market’s biggest problem

Eli Lilly (NYSE: LLY) is one of the world’s leading pharmaceutical companies, selling treatments for a wide range of diseases — from diabetes to cancer. But one type of product has stood out lately and driven both the company’s revenue and stock performance. I’m talking about Lilly’s weight loss drugs, which bring in billions of dollars in revenue.

Lilly sells the compound tirzepatide in two forms: Mounjaro for type 2 diabetes and Zepbound for weight management. Doctors have been known to prescribe either to patients who are losing weight. Demand is high for these products because they are effective, easy to take, and treat a growing problem. The weight loss drug market could reach $100 billion by the end of the decade, according to the report Goldman Sachs Research.

In fact, demand was so great that it outstripped supply, forcing out Lilly and the rival Novo Nordisk to invest in additional production capacity. Recently, Lilly made a new move that could solve this supply problem — the biggest problem facing these drugmakers — and boost Lilly’s already strong earnings.

The new version of Lilly Zepbound

So what is this important move? Lilly launched a new version of Zepbound in 2.5 mg and 5 mg single-dose vials, distributed directly through the company’s auto-pay channel for prescription patients. A four-week supply of lower-dose vials is available for $399, while higher-dose vials cost $549. That’s less than half the price of other similar weight loss drugs, including Lilly’s Zepbound in its original pen form, which has a list price of more than $1,000. (This original version of Zepbound will remain available.)

As it stands, even if Lilly can’t fully meet demand and only offers the higher-priced pen product, Zepbound’s revenue has taken off. The drug was launched late last year and achieved blockbuster status in less than six months. In the second quarter of this year, Zepbound generated more than $1.2 billion in revenue. At the same time, Lilly reported more than $3 billion in revenue for Mounjaro.

This weak quarterly performance led Lilly to raise the company’s full-year revenue guidance by $3 billion to a range of $45.4 billion to $46.6 billion.

Lilly says the launch of single-dose flares will “significantly” expand the Zepbound offering. This is great news for patients waiting to try the drug, and it’s also fantastic news for Lilly as it signals further revenue growth going forward.

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Expanding the supply of weight loss drugs

So how exactly will single dose vials expand the offering? Lilly didn’t provide details, but it’s fair to say that vial packaging, compared to pen packaging, could simplify the manufacturing process and save Lilly production time and money. Serving the product through the single-payer channel should also help Lilly gain efficiencies by streamlining the costs of its weight loss drug portfolio.

Lilly has invested heavily in manufacturing in recent years, pouring an estimated $18 billion into this area by 2020. This, along with the new bottle format, could lead to major advances when it comes to increasing the supply of slimming drugs.

Now let’s consider what this means for us as investors. Lilly is the leader in the high growth weight loss drug market, but the only obstacle has been the supply problem. Faced with difficulty obtaining Lilly and Novo Nordisk weight-loss drugs, some patients have turned to compounded options — reformulated versions made by independent pharmacies. (Compounding pharmacies are allowed to sell them in case of product shortages.) This represents lost revenue for manufacturers of approved drugs.

Lilly’s recent moves have made great strides in addressing the supply problem. As a result, we as investors have reason to be optimistic about its ability to meet product demand and generate revenue growth in this expanding market. This makes Lilly a top pharma stock to add to your portfolio right now and hold for the long term.

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Adria Cimino has no position in any of the actions mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

This Big Move by Eli Lilly May Solve the Weight Loss Drug Market’s Biggest Problem was originally published by The Motley Fool