Morgan Stanley Eli Lilly headquarters research: Management is very confident about the "weight loss drug market"

Morgan Stanley's analyst team recently conducted an in-depth investigation at Eli Lilly's headquarters, and the core signal conveyed by the research is: Eli Lilly's management is extremely optimistic about the prospects of the weight loss drug market, believing it will become a "super category" market.

On August 20, according to news from the Wind Trading Desk, Morgan Stanley analysts stated in their latest research report that they recently visited Eli Lilly's headquarters and had in-depth discussions with the executive team, including the CEO, CSO, and CFO. The management showed strong confidence in the prospects of the weight loss drug market, believing it will become a "super category" composed of multiple drugs.

Eli Lilly's management emphasized the strategic value of the oral GLP-1 drug Orforglipron. The CEO stated that the opportunity for oral medications may be greater than that for injectables, especially in the maintenance treatment phase. The management believes that the safety data for Orforglipron alleviates the biggest concerns from the Phase III trials, which will make it an important successful product for the company.

In terms of pricing strategy, Eli Lilly plans to adopt a tiered pricing model: Semaglutide as the mid-range backbone product, with oral drugs like Orforglipron priced slightly lower, while highly effective injectables like Retatrutide are positioned at the high end. The management expects that competitors will maintain rational pricing in the near term, but there is uncertainty regarding the behavior of later entrants.

The research report states that regarding market access issues, the management proposed four major driving factors: gaining more indications approval, favorable pharmacoeconomic studies, differentiated commercial benefit programs, and the U.S. government's decision to cover these drugs.

Based on this research, Morgan Stanley maintains an "overweight" rating on Eli Lilly, with a target price of $1,028, based on a 26 times price-to-earnings ratio applied to the expected earnings per share of $39.53 for Q3 2026 to Q2 2027. Although this multiple is higher than the industry average (about 15 times), considering the company's growth prospects and pipeline optionality, this valuation is reasonable.

Weight Loss Drug Market Positioning: Multi-Product Combination Seizing the "Super Category"

Morgan Stanley stated that during the investigation at Eli Lilly's headquarters, the CEO clearly indicated that weight loss drugs will develop into a "super category" that includes multiple drugs, and the market will experience a certain degree of segmentation. The company is in a favorable position in this field with its broad product portfolio across treatment lines.

The research report pointed out that Eli Lilly's management believes that Semaglutide cannot meet the global patient demand, and the market will be segmented based on weight loss and blood sugar control effects, different administration routes, dosing frequency, and other differentiated needs in metabolic areas. Eli Lilly is developing product pipelines in these areas and believes the company is in a leading position in each segmented market.

The CSO added that the company currently has the largest R&D portfolio ever, with a higher success rate and a faster advancement speed than the industry average. In the field of weight loss drugs, the company is committed to building a complete product portfolio covering all segmented markets

Oral GLP-1 Drug Orforglipron: Opening a New Growth Engine

Research reports indicate that the overall prospects of the oral GLP-1 drug Orforglipron have become a focus of investigation. The management team has shown high confidence in the performance of the oral GLP-1 drug Orforglipron. The CSO pointed out that the overall data delivered from the Phase III trials fully supports the company's vision to expand GLP-1 drugs globally.

Crucially, the management emphasized that the drug characteristics of Orforglipron should not be viewed in isolation, but rather as part of Eli Lilly's product portfolio, allowing the company to provide this product seamlessly and consistently through channels including LillyDirect.

In terms of efficacy, Orforglipron covers most of the dynamic range of injectable GLP-1 drugs. The management noted that only one-third of patients use the 2.4mg dose of Wegovy, and only half of the patients use the 1.7mg dose, thus feeling satisfied with the weight loss range covered by the drug.

The management believes this is a turning point for GLP-1 drugs, no longer constrained by supply limitations. The company can now consider further improving health outcomes, with the key being to gain market access and communicate value propositions with payers.

More importantly, the management believes that the market opportunity for oral medications may be larger than that for injectables, especially in the maintenance treatment phase. The convenience of Orforglipron, which has no food/water restrictions, will also be a significant advantage.

Pricing Strategy: Three-Tier Structure to Address Market Competition

Morgan Stanley stated that Eli Lilly has developed a clear tiered pricing strategy to address competition in the weight loss drug market. The CEO indicated that pricing for weight loss drugs may exhibit tiering similar to the market, with semaglutide as a mid-tier backbone product, oral drugs like Orforglipron priced slightly lower, and highly effective injectables like Retatrutide positioned at the high end.

The management expects that recent competitors will maintain discipline in pricing, but the behavior of later entrants is more uncertain. The company's overall strategy remains focused on differentiation and innovation.

In terms of pricing, the CFO revealed that the composition of the U.S. market based on gross price is: commercial insurance 50%, Medicare 20%, Medicaid 8%. The management believes that price discounts potentially brought by the IRA will not have a significant impact on commercial channels, using Medicaid as an example.

Market Access Strategy: Four Key Drivers to Expand Coverage

Eli Lilly has identified four key drivers to expand market access for GLP-1 weight loss drugs. First is obtaining more indications for approval, such as the recently approved indications for sleep apnea and MASH. Second is favorable pharmacoeconomic studies, with benefits consultants now having relevant models.

The third factor is differentiated commercial benefit programs, including higher out-of-pocket expense plans. Finally, it is the decision by the U.S. government to cover these drugs. The management expressed hope to achieve broad coverage before the launch of semaglutide generics In terms of competition in generic drugs, the President of International Business stated that the company has always anticipated the future launch of a generic version of semaglutide and emphasized the importance of innovation and having a product portfolio. In markets such as the UK and Germany, the pricing of semaglutide is already higher than competitors, but the company has performed excellently in terms of market share.

In terms of external development, the company will continue to execute its early platform trading strategy, conducting about 20-30 such transactions each year, and then developing from a technological and platform perspective. Management believes that AI in drug discovery is currently more incremental than revolutionary, and there are still many biological mechanisms that need to be understood