Obesity drugs approach a major milestone, and Lilly may have a 'game changer' ahead

An important development from the financial markets: Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. A late day rally is needed if the S & P 500 and Nasdaq on Thursday are to avoid their fourth down session in a row. ET, the S & P 500 had inched into slightly positive territory.

The Nasdaq was still negative. While the semiconductor and data center buildout theme got a jolt of good news from Micron's earnings and strong forward commentary, the companies that have to foot the higher memory chip bill — think cloud hyperscalers like Amazon , Microsoft , Meta Platforms and Alphabet , but also Apple because consumer electronics need these chips too — are seeing their stocks tumble. As Jim Cramer pointed out in his Sunday column , the memory chip shortage has been one of the key drivers behind the recent stock weakness in the hyperscalers, throwing a monkey wrench in their growth plans.

Economic Details

Shares of Eli Lilly traded higher Thursday afternoon after analysts at Leerink raised their price target on the GLP-1 maker by 10%, to $1,232 from $1,119. The firm raised its price target in anticipation of upside to obesity sales outside the U. as utilization grows in international markets.

Back at home, the analysts expect prescription momentum for Lilly's oral GLP-1 Foundayo and injectable Zepbound to pick up when Medicare obesity coverage begins July 1 for $50 a month. That long-awaited coverage will be offered to eligible patients through a temporary program — called the Medicare GLP-1 Bridge — currently set to run through the end of 2027. On Thursday, Eli Lilly provided additional details on how to access both Foundayo and Zepbound under the government initiative.

Historically, Medicare was unable to cover obesity drugs, so this is a big milestone for broader adoption. Lilly and Novo Nordisk, which makes Wegovy, are the two dominant players in the GLP-1 market. LLY YTD mountain Lily's year-to-date stock performance.

Analyst Views

While Foundayo and Zepbound are Lilly's only obesity drugs currently on the commercial market, it has a pipeline of next-generation treatment options. That includes a combination of tirzepatide, the active ingredient behind Zepbound, with an experimental drug called eloralintide . Eloralintide mimics a hormone involved in regulating appetite known as amylin.

By contrast, tirzepatide mimics the GLP-1 and GIP hormones, which also influence appetite. In the same note, analysts at Leerink called the tirzepatide-eloralintide combination a potential "game changer. " In a standalone mid-stage trial last November, eloralintide showed promising tolerability and was still able to drive meaningful weight loss.

Eli Lilly is testing the drugs as a combination therapy, and Leerink believes it has the potential to outperform injectable Zepbound and Novo's Wegovy. How the obesity market evolves over the next few years should be quite interesting.

Economists are analysing what the news means for the markets.