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Eli Lilly shares soared Tuesday on a one-two punch of good news. Investors may debate just how good — but Jim Cramer lands firmly among the bulls. The news The Biden administration proposed a rule change that would enable Medicare and Medicaid to cover obesity drugs starting in 2026 — potentially giving millions of Americans enrolled in the two government health programs access to pricey treatments sold by Eli Lilly and its chief rival in the weight loss market, Wegovy maker Novo Nordisk . Lilly is known for Zepbound. The Biden administration estimates that the change would impact about 3.4 million Medicaid enrollees and an additional 4 million people on Medicaid, NBC News reported , citing a White House official. Medicare, the federally run insurance program for seniors, has historically been barred by law from covering drugs used exclusively for weight loss. The Biden administration is offering a reinterpretation of that law, citing “the prevailing medical consensus towards recognizing obesity as a disease.” The proposal would specifically “permit coverage of anti-obesity medications for the treatment of obesity when such drugs are indicated to reduce excess body weight and maintain weight reduction long-term for individuals with obesity,” according to a fact sheet provided by the Centers for Medicare and Medicaid Services. That change in approach would have ramifications for Medicaid, which is administrated by states and provides health insurance to low-income people. If implemented, Medicaid programs would need to cover obesity drugs, CMS said. Currently, it’s optional. In 2024, fourteen states provide no coverage at all, including populous New York and Texas, according to the STOP Obesity Alliance , an advocacy group. The second positive development for Eli Lilly comes from Amgen , which reported mid-stage trial results for its experimental obesity treatment known as MariTide. On average, adults with obesity lost up to 20% of their body weight after 12 months on the drug without plateauing — which, the company said, indicates additional reductions could take place with a longer treatment period. Patients received injections of MariTide monthly or, in some cases, a less frequent dosing. Amgen is moving MariTide into phase-three trials, the next step in applying for regulatory approval. Nevertheless, shares of Amgen fell more than 11% on the results, in a sign that MariTide didn’t meet the loftiest of expectations on Wall Street. Lilly shares rose more than 6% Tuesday. Novo Nordisk added more than 2.5%. Big picture The prospect of across-the-board coverage of obesity drugs for Medicare and Medicaid enrollees would be a financial win for Eli Lilly, particularly on the Medicare front. One benefit of Eli Lilly and Novo Nordisk conducting trials to show that their obesity drugs improved other health outcomes — such as reducing the risk of cardiovascular events and treating a type of sleep apnea — was that securing additional approvals from U.S. drug regulators could provide a backdoor around the Medicare restrictions. While the status quo prevented coverage of weight loss treatments exclusively, drugs that were cleared to treat multiple conditions were a different ballgame. Indeed, Novo’s obesity drug Wegovy secured approval, known as an expanded label, for cutting heart disease risks earlier this year . For its part, Eli Lilly has said regulators could expand Zepbound’s label to cover obstructive sleep apnea by year-end. Zepbound also has shown heart health benefits . The key question for the Biden administration’s proposed rule change is whether it will actually go into effect, given President-elect Donald Trump takes office in January. “We do not know this yet because the incoming administration may have the real say in this,” analysts at Wells Fargo told clients Tuesday. “We think this proposal could still put pressure on the incoming administration to cover it. Having said that, the nominated HHS secretary is not a big fan of weight loss drugs,” analysts wrote, referring to Robert F. Kennedy Jr. Trump picked Kennedy — a critic of the pharmaceutical industry and obesity drugs in particular — to run the Department of Health and Human Services, which sits atop both CMS and the Food and Drug Administration. Kennedy needs to be confirmed by the Senate. Wells Fargo analysts said the proposed coverage change is nevertheless positive, but they argued label expansion for obesity drugs may prove to be more consequential for driving future sales. The release of Amgen’s trial results shines a spotlight on another important topic for investors in Lilly: the threat of competition. Amgen is among the companies trying to join Lilly and Novo in the fast-growing obesity drug market, which some on Wall Street expect to be worth $100 billion by the end of the decade. In a note to clients, analysts at Leerink said MariTide’s “only differentiation” appears to be it’s taken less frequently than Eli Lilly’s tirzepatide, which is a weekly injection. Tirzepatide is the scientific name for the active ingredient in Zepbound. It also is sold under the Mounjaro brand for type-2 diabetes. Other analysts were more positive, with Piper Sandler contending patients’ weight reduction on MariTide occurred “much faster” than tirzepatide. Patients with obesity who took the highest dose of tirzepatide lost an average of 22.5% of their body weight over a 72-month trial . Both Leerink and Piper agreed that MariTide’s safety profile looks worse than tirzepatide. In MariTide’s trial, the discontinuation rate due to adverse reactions such as nausea and vomiting was about 11% compared with roughly 7% in a large-scale trial of tirzepatide. Bottom line Jim Cramer said he sees both developments — the Biden proposal and Amgen’s results — as being favorable for Eli Lilly, a longtime Club holding that we bought more during Monday’s session. “Better lucky than good,” Jim quipped Tuesday, regarding the timing of our purchase. Indeed, the only reason we hadn’t added to our position sooner to take advantage of Lilly’s recent swoon was our trading restrictions that prevent us from trading stocks for 72 hours after Jim mentions them on CNBC. Securing Medicare coverage, in particular, has been “the holy grail” for the obesity drug industry, Jim said. He noted that it would also put pressure on private insurers to follow suit. While it remains to be seen whether the proposed Medicare changes will be implemented, at the least, it certainly advances the narrative in a positive way. During the Morning Meeting, Jim said he views Amgen’s mid-stage data on MariTide as “less than competitive” compared with Zepbound. Lilly’s incumbency advantage is an important factor, he said. One more thing: The comparisons of MariTide to Zepbound are understandable, given Zepbound is the current standard-bearer, but Lilly has a next-generation obesity drug , retatrutide, that looks even better than its current offering. In a mid-stage study released in June 2023, patients with obesity who took the highest dose of retatrutide lost an average of 24.2% of their body weight over a 48-week trial. Its large-scale, phase three study looking at retatrutide is expected to end in February 2026. (Jim Cramer’s Charitable Trust is long LLY. See here for a full list of the stocks.) 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An Eli Lilly & Co. Zepbound injection pen arranged in the Brooklyn borough of New York, US, on Thursday, March 28, 2024.
Shelby Knowles | Bloomberg | Getty Images
Eli Lilly shares soared Tuesday on a one-two punch of good news. Investors may debate just how good — but Jim Cramer lands firmly among the bulls.
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