Forecast: Eli Lilly's latest move puts AbbVie shares at risk

Eli Lilly'S (LLY 0.42%) The company's insatiable appetite to squeeze even more money out of its top-selling therapies is starting to look downright impressive. With its research and clinical groups firing on all cylinders and management pouring even more cash into the tank, the pace of growth is likely to accelerate rather than slow.

And if the pharmaceutical industry’s latest move pays off, it will likely put pressure on AbbVie (ABBV -0.77%)although the latter company is focused on developing treatments for a largely different group of health conditions. Let's break down this prediction in more detail and examine the reasons why it is credible.

One pharmaceutical company could steal another's lunch

Lilly's obesity drug Zepbound is based on the molecule tirzepatide. Zepbound's sales exceeded $1.2 billion in the second quarter of 2024 alone, so it's an extremely lucrative product. In addition, the same molecule is also the active ingredient in the drug Mounjaro, used to treat type 2 diabetes – a drug that generated sales of more than $3 billion in the same period.

Tirzepatide has already proven to be an extremely versatile therapy. Clinical trials recently showed it to be helpful in treating obstructive sleep apnea in people with obesity, as well as in treating heart failure in the same patient group. Soon, the company will likely receive approval from regulators to market the drug for these indications in addition to those already approved.

But Eli Lilly's research and development work with tirzepatide is far from complete. It still needs to be tested in some conditions where it might be of benefit. And given the potential to combine it with other drugs, the market in which it can be used is likely to grow in the coming years.

The next area of ​​research will be one of AbbVie's core areas: immunology. Lilly plans to begin a clinical trial this fall to test whether tirzepatide could be helpful in treating psoriasis when combined with another of the company's drugs, Taltz. Taltz is currently approved to treat psoriasis, psoriatic arthritis and ankylosing spondylitis. The combination therapy is thought to be even more effective at relieving symptoms than Taltz alone.

Interestingly, some findings from clinical case reports suggest that Novo NordiskThe molecule semaglutide, contained in the drugs Ozempic and Wegovy, could also be effective in the treatment of psoriasis, as an addition to first-line therapies in patients with obesity and type 2 diabetes. Since tirzepatide shares one of semaglutide's mechanisms of action and targets the GLP-1 receptor, it could also be effective in this context as an add-on treatment in the fight against psoriasis.

Lilly is also reportedly exploring whether to try combinations of tirzepatide with drugs for inflammatory bowel disease (IBD) in the near future.

For AbbVie, the threat from Eli Lilly is significant but not immediate. Humira, the company's now-sagging moneymaker, is intended for a range of immunological diseases, including rheumatoid arthritis, psoriasis, psoriatic arthritis, ankylosing spondylitis and Crohn's disease. But Humira's manufacturing exclusivity has since expired, so generics are quickly eroding its market share.

The two drugs AbbVie has developed to replace Humira's contribution to its top line, Skyrizi and Rinvoq, together cover largely the same indications as Humira. And there are plans to expand their coverage to additional applications within immunology.

If combinations of other drugs with tirzepatide produce the desired effect, they could soon pose an obstacle to AbbVie's growth because of its two Humira replacement drugs.

Do not rush to sell or buy based on this information

AbbVie is not doomed. Tirzepatide will probably not be ready to take market share away from AbbVie for a few years, if it ever does.

Still, the transition of a cardiometabolic drug into the immunology space and perhaps beyond holds tremendous potential. And, excitingly for Lilly's investors, the anti-inflammatory properties of tirzepatide and closely related drugs are still being explored. The conclusion is that even if AbbVie's drugs do not face additional (and perhaps more effective) competition from tirzepatide, another company's products undoubtedly will.

Interpret this new move as bullish for Eli Lilly stock.

But remember that conducting clinical trials to test the drug pending regulatory approval is a cost, not a revenue. Some of Lilly's attempts to expand tirzepatide's indications are bound to fail, but others are bound to succeed. With the large markets potentially at play, try to keep track of which trials will make the most financial sense.