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Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) are locked in an intensifying conflict for control over the markets for weight loss and type 2 diabetes treatments. Novo Nordisk’s diabetes therapy Ozempic is the leader of the pack at the moment, generating upwards of $3 billion in sales in the third quarter alone.

Eli Lilly has more than one plan in store to topple the market’s leader. Let’s take a look at its latest attempt to develop an Ozempic killer, and determine whether it’s a factor in the investing thesis for buying the stock.

Ozempic is the product to beat right now

Eli Lilly’s molecule tirzepatide is currently sold under the trade names Mounjaro for treating type 2 diabetes and Zepbound for treating obesity. It’s a direct competitor to Novo Nordisk’s molecule semaglutide, the active ingredient in Ozempic (as well as a pair of its other products, Wegovy and Rybelsus).

In the third quarter, Mounjaro brought in sales of more than $1.4 billion, up from just $187 million a year earlier, so it’s already a big winner and driver of growth. Regulators at the Food and Drug Administration (FDA) approved Lilly’s application to expand Mounjaro’s indications to include treating obesity on Nov. 8, so Zepbound’s revenue will now start to scale up. The medicine is now directly competing with Wegovy.

Whereas Ozempic has one physiological target, Mounjaro and Zepbound target two different cellular receptors, one of which they share with Ozempic. Acting on the additional target is why Mounjaro is somewhat more effective at helping patients control their blood glucose levels and shed more weight. But that extra effectiveness only aggravates one of the less-appreciated side effects of treatment with both drugs: muscle loss.

This biotech might give Mounjaro a bit of extra flex

If you’ve ever been on a diet, you probably appreciate that it’s very difficult to maintain your muscle volume while your system is running at a caloric deficit. With these medicines, weight loss can be extreme, with patients losing in the ballpark of 21% of their total body weight over the course of a year of treatment. A lot of that weight loss likely stems from liquidating fat deposits for energy, but some almost certainly comes from losing muscle mass as well. In older individuals, who might already struggle to maintain enough functional bulk to handle the tasks of daily living, the potential losses may well prohibit starting treatment with Ozempic or Mounjaro.

Enter BioAge, a private biotech that’s working with Eli Lilly to test its candidate azelaprag in combination with tirzepatide in a phase 2 clinical trial starting in mid-2024. Based on preclinical testing in animal models, azelaprag could help patients to lose even more weight when being treated with tirzepatide, and critically, also help them avoid losing their muscle volume in the process. The company’s prior phase 1 study indicated that the drug was well-tolerated, and that it helped a group of healthy older people to retain dramatically more of their muscle mass than a placebo after they were confined to 10 days of bed rest.

If BioAge’s candidate generates positive data in its upcoming trials, it could hugely boost Eli Lilly’s prospects of outcompeting Novo Nordisk in the white-hot type 2 diabetes and obesity markets. Removing one more barrier to using Mounjaro or Zepbound in seniors and other people who can’t afford to lose muscle mass will expand the size of its addressable market, and make it an even more appealing option compared to Ozempic than it is now.

There’s also a strong possibility that the combination of tirzepatide and azelaprag might offer additional health benefits that are preventative, much as semaglutide can reduce the risk of heart attacks and strokes in vulnerable people. And that’d expand Lilly’s market even further.

But it’s important to recognize that these scenarios will take at least a few years to develop if they happen at all. Clinical trials and additional research and development (R&D) work will need to be conducted and concluded successfully, and as it’s private, there is no way of telling if BioAge can actually afford to proceed beyond the next set of trials.

Furthermore, BioAge is currently retaining the rights to commercialize azelaprag for all indications, and its collaboration with Eli Lilly centers around clinical trial design and execution rather than co-development of new assets. The financial details of their partnership haven’t been disclosed. The pharma juggernaut will probably want to acquire the biotech if its mid-stage clinical results look good, but for now, there’s no sign of any explicit financial mechanisms in the pair’s agreement that would enable that to happen.

Is Eli Lilly a screaming buy thanks to the work it’s doing with BioAge? Not really. There’s still a lot of clinical work to be done, and BioAge’s program could easily be a flop.

But this stock is still a worthy purchase for other reasons. Specifically, its pipeline is packed with promising near-term opportunities to bring in more sales, and its recent performance suggests it can easily and profitably share key disease markets with the likes of Novo Nordisk.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

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