JPMorgan Chase: Lilly management believes that oral medication will change the landscape

  On March 15th, JPMorgan Chase released a report stating that the market underestimated the competitive advantages of the weight loss, Lilly and Novo Nordisk. "Double weight loss heroes" has a strong and rich R&D pipeline in the field of diabetes and obesity treatment, a profitability that can provide high rebate, and a production base with tens of billions of investment, which will make it difficult for new competitors to enter the market, thus strengthening the moat of "Double weight loss heroes".

  In addition, the orforglipron drug developed by Eli Lilly is more easily accepted by consumers because oral administration is more convenient than traditional injection therapy. In developed countries, about 20-25% of patients with type 2 diabetes are more likely to choose oral drugs. Moreover, oral medications typically have lower production costs than injectable medications, thereby reducing overall treatment costs. This will bring huge market space to Lilly. JPMorgan expects that Lilly will have better than expected performance in the future and will become the leader in the weight loss and diabetes markets.

"Double Weight loss heroes" moat underestimated by the market

  JPMorgan Chase believes that the "Double weight loss heroes" have a certain competitive advantage, and the market underestimates their moat. The main reasons include three aspects:

  (1) The "discount barrier" in the US market: In the US market, some drugs produced by "Double weight loss heroes" have high sales and gross profit margins, and they usually provide rebates (rebates) to insurance companies and other payers to ensure that their drugs are covered by insurance plans, thereby promoting drug sales. At present, "Double weight loss heroes" has established a strong position in the market and can provide high rebates.

  However, new competitors entering the market need to provide equally high or higher rebates to attract the support of payers (such as medical insurance), which may affect their profitability. Therefore, this "discount barrier" makes it difficult for new competitors to enter the market, thus maintaining the market position of the "duo".

  (2) Heavy asset barrier: In the market of weight-loss drugs and diabetes drugs, it not only takes 3-4 years to establish new production lines, but also requires billions of dollars of high investment. For example, Novo Nordisk's controlling shareholder spent $11 billion to acquire three major bases to accelerate production of its Wegovy and Ozempic.

  This heavy capital investment is a competitive advantage for "Double weight loss heroes" as it blocks many potential competitors, such as Amgen and Roche (companies developing similar drugs). Other competitors may not necessarily succeed even if they invest a huge amount of money in the early stage, so they can only sigh and leave with reluctance.

  (3) R&D advantages: "Double weight loss heroes" products will not only be used to treat diabetes and obesity, but also may be approved for a series of other diseases or health conditions. For example, on March 9th, Novo Nordisk's "weight loss miracle drug" Smegglutide was approved by the US FDA for use as a heart treatment, demonstrating the importance of "added medical value".

  Moreover, if "Double weight loss heroes" successfully adds more indications and research results to its product labels in the coming years, it will further consolidate its market position. For competitors, they not only need to develop new drugs, but also need to demonstrate through head to head (H2H) comparative studies that their products are at least as effective as those of "Double weight loss heroes". However, these studies require significant resources, time, and funding, and the uncertainty of success is also high, which undoubtedly increases their research and market risks.

  In addition, if the products of "Double weight loss heroes" have established a strong market position and brand reputation, even if the products of new competitors perform well in research, they may find it difficult to gain market recognition and acceptance.

  In this regard, JPMorgan Chase said that although new competitors such as AMGN and Viking may enter the market, their market share will be less than 10%, and "Double weight loss heroes" will still dominate the market of diet pills and diabetes. Moreover, other market analysts may underestimate the difficulty of new drugs entering the weight loss market and gaining market share, unless potential competitors can develop unique new oral drugs.