Eli Lilly shares surge after weight-loss drug prevents diabetes

Eli Lilly (LLY) shares rose on Tuesday after the drugmaker's successful weight-loss drug significantly reduced the risk of diabetes within three years.

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The company tested its drug tirzepatide on patients with prediabetes and obesity. After three years, the patients were 94 percent less likely to develop type 2 diabetes compared to the placebo group. In addition, they lost an average of 22.9 percent of their body weight, while the placebo group lost only 2.1 percent.

“These data support the potential clinical benefit of long-term therapy for people with obesity and prediabetes,” said Jeff Emmick in a written statement. Emmick is senior vice president of product development at Lilly.

In today's trading session, Eli Lilly stock rose 3.1% to 949.97. Shares are approaching their previous intraday record of 966.10 reached on July 15.

Expanded uses for weight loss drugs

Lilly markets tirzepatide as Mounjaro for the treatment of diabetes and the weight loss drug Zepbound.

Although it is relatively new on the market – it was first approved in 2022 – tirzepatide is already a financially strong moneymaker. Last year it generated sales of $5.34 billion. This year, analysts surveyed by FactSet expect sales of almost $18 billion.

Eli Lilly stock is closely tied to the company's efforts to expand the uses of tirzepatide. The company is testing tirzepatide in a myriad of diseases thought to be caused by obesity, including heart disease, sleep apnea and Alzheimer's disease.

Emmick pointed out that nearly 900 million adults worldwide are at risk of complications due to obesity.

Lilly also advocates long-term use of tirzepatide. During a 17-week follow-up period in which patients stopped treatment, some began to regain weight and developed type 2 diabetes, resulting in an overall 88% reduction in diabetes risk.

Eli Lilly shares have high valuations

Eli Lilly stock is highly valued. Shares have an IBD Digital Composite Rating of 98, meaning Lilly is in the top 2% of all stocks in terms of fundamental and technical metrics. Lilly shares also have a strong Relative Strength Rating of 93, a 1-99 measure of a stock's 12-month performance.

Notably, Eli Lilly stock ranks 50th on the IBD 50 list of elite growth stocks.

Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.

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