Why I'm Bullish on Eli Lilly as the Next Evolution in Weight Loss Unfolds

Losing fat and retaining muscle is the new edge, and the company is poised to capitalize through mergers or research

The boom in weight-loss drugs has dominated headlines for the last two years, but there’s a major flaw in the science. GLP-1s like Ozempic and Mounjaro help patients shed pounds, but nearly 40% of the weight loss is coming from muscle, not fat. That’s not just a cosmetic issue — it’s a serious metabolic concern. And it’s opened the door to a second wave of opportunity in obesity treatment.

Recently, a small biotech — Scholar Rock (SRRK) — released trial data that could be a game-changer. Its therapy, a myostatin inhibitor, showed an 85%-fat-to-15% muscle loss ratio when combined with GLP-1s. The market responded quickly, sending the company’s stock soaring by more than 300%. Behind the scenes, pharma giants are paying attention. And the one best- positioned to act? Eli Lilly (LLY).

Let’s look at the details.

GLP-1s like Ozempic and Mounjaro cause up to 40% of weight loss from muscle, not fat. But Scholar Rock released early trial data showing dramatically improved fat-selective weight loss, leading to a 300% stock surge.

Lilly dominates the GLP-1 business and is in a perfect position to lead the muscle-preserving weight loss category. Bloomberg reports the company is exploring compounds that fix GLP-1’s key flaw, including potential M&A. I’m long on its stock via both a bull call spread and an August put credit spread, using defined risk while the narrative plays out.

Flawed Foundation of GLP-1 Hype

GLP-1 receptor agonists — such as semaglutide (Ozempic/Wegovy) and tirzepatide (Mounjaro/Zepbound) — have exploded in popularity for one simple reason:

They help people lose weight, fast. But we’re now seeing a much deeper story unfold.

A 2021 peer-reviewed study published in Nature Medicine found up to 39% of the total mass lost by patients using semaglutide was lean muscle tissue. That’s huge.

Muscle is essential for metabolic health, blood sugar regulation, strength and long-term weight maintenance. Losing it alongside fat might make you lighter, but it also makes you weaker and less metabolically resilient.

This flaw in the GLP-1 mechanism is now gaining mainstream attention. It also provides the setup for the next major advancement in obesity therapeutics: myostatin inhibitors. These compounds target the genetic “brakes” on muscle growth. In rare genetic cases, people with natural myostatin deficiencies display superhuman strength — one German toddler famously had the ability to deadlift 7-pound dumbbells at age four. Researchers are now working to develop safe, scalable ways to mimic this effect, especially for patients taking GLP-1s.

That’s exactly what Scholar Rock did and the early data is lighting a fire under the entire industry.

The Data That Changed the Game

When Scholar Rock reported its latest trial results, it confirmed something the market was waiting for: You can lose fat without losing muscle if you target myostatin.

The company’s experimental treatment was combined with GLP-1 therapy, and patients showed a composition of 85% fat loss, 15% muscle loss — the inverse of what GLP-1s typically deliver. Not only does this improve physical outcomes but may also extend the efficacy and durability of weight loss over time.

The market immediately priced this in. Stock in Scholar Rock exploded over 300% in just a few trading sessions, and biotech watchers started looking for the next domino to fall — namely, who’s going to scale this innovation? That’s where Lilly enters the picture.

The natural leader for the next wave

Eli Lilly is already a dominant force in the GLP-1 market. Its flagship drug Mounjaro is expected to generate over $5 billion in sales this year. And Zepbound, its weight-loss-specific formulation, is rolling out globally with strong adoption.

But Lilly is now actively exploring next-gen compounds that address GLP-1 side effects, including muscle preservation, aaccording to a Bloomberg article published in June 2024. With deep clinical partnerships, a robust cash position and an aggressive acquisition history, it’s the most likely candidate to bolt on a myostatin pipeline or build one in-house.

This isn’t just speculation. The obesity market is expected to reach over $100 billion by 2030, and muscle-sparing aproaches may become the standard for long-term use. Lilly is well aware of this, a if it acts before Novo Nordisk or Regeneron, it will own the narrative (and the market share) for years to come.

The Trade: Long Lilly with two defined-risk positions

To get long Lilly, I’ve sold a put spread.

Put credit spread (premium collection)

• Structure: Sold the Aug. 15 $750 puts, bought the $740 puts
• Credit received: $3.41
• Why: I want to get paid for bullish exposure while giving myself a margin for error; $750 is a key support area

This setup gives me long delta exposure with defined risk, limited downside and upside potential through multiple catalysts.

Final thoughts: Where weight loss goes next

This isn’t about trading hype. It’s about understanding how science shifts sentiment and how sentiment moves markets.

GLP-1 drugs changed the landscape of modern healthcare. But their weakness — muscle loss — is now creating a new frontier. The companies that solve it will dominate the next phase of this megatrend. With its proven track record, market share and M&A appetite, Eli Lilly is the most likely leader.

I’ll be watching for announcements from Lilly about muscle-preserving trials or partnerships.

Errol Coleman appears on the tastylive network shows Today’s Assignment and Trades on the Go.

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