The Food and Drug Administration approved an Eli Lilly diabetes drug it described as "novel," prodding LLY stock closer to a breakout.
Lilly's tirzepatide targets two hormones to improve blood sugar, while rival drugs like Novo Nordisk's semaglutide only target one. In a news release announcing the approval on Friday, the FDA said Lilly's drug, now called Mounjaro, "was more effective than other diabetes therapies with which it was compared in clinical studies."
Mizuho Securities analyst Vamil Divan noted "even the FDA appears bullish on Mounjaro's potential." Lilly is also studying tirzepatide. as an obesity treatment. Similarly, Novo Nordisk's semaglutide sells under the brand name Wegovy for weight loss.
"It is clear to us that the FDA is impressed by Mounjaro's clinical profile to date," he said in a note to clients.
On today's stock market, LLY stock popped 2.7% to 299.38. Novo Nordisk shares fell 2.6% to 103.24.
LLY Stock: Weight Loss Potential Key
In its release, the FDA called out Mounjaro's ability to aid in weight loss. Divan says this signals the FDA may allow Lilly to add weight loss data to the label for Mounjaro in diabetes treatment. The label update would likely be based on Lilly's Surpass study. Surpass is examining the drug's weight-loss potential in patients with obesity but not diabetes.
"We believe many investors are under-appreciating the impact weight loss will have on patients staying on therapy since patients will be seeing the benefit the drug is having with their own eyes, as opposed to more hidden impact other diabetes therapies tend to have on blood tests such as hemoglobin A1C," Divan said. He kept his buy rating and 365 price target on LLY stock.
Divan says Lilly is a "best-in-class story in large-cap biopharma." He expects 2030 sales of Mounjaro to top $14 billion.
The approval helped push LLY stock closer to a breakout. Shares are forming a flat base with a buy point at 314.10, according to MarketSmith.com.
LLY stock is also top-rated with Composite, Relative Strength and EPS ratings in the 90s, according to IBD Digital. Its fundamental and technical measures outrank 97% of all stocks. In terms of 12-month performance, LLY stock is in the leading 4% of all stocks. Its profitability is in the top 7%.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
