March 19 (Reuters) - Eli Lilly's ( LLY ) next-generation

obesity drug showed a reduction in blood sugar levels during a

late-stage trial, the drugmaker said on Thursday, as it looks to

widen its lead in the heavily contested market for GLP-1 drugs.

Drug developers are racing to enter the highly competitive

and booming obesity market dominated by injectable drugs such as

Novo Nordisk's Wegovy and Lilly's Zepbound,

prompting heavy investment in next-generation treatments that

could deliver faster, deeper, or more durable weight loss.

Lilly tested the drug, retatrutide, in patients with type 2

diabetes who had inadequate glycemic control with diet and

exercise alone, and a mean duration of diabetes of two and a

half years.

During the 40-week trial, retatrutide reduced A1C, a measure

of blood sugar over time, by an average of 1.7% to 2.0% across

doses compared to an average reduction of 0.8% in placebo.

For a key secondary goal, patients who took the drug lost up

to an average of 16.8% of their weight.

Overall, side effects were in line with those typically seen

in weight-loss treatment trials, the company said, including

gastrointestinal issues such as nausea, diarrhea and vomiting.

In a previous trial, retatrutide helped patients lose an

average of 28.7% of their weight, outperforming Lilly's

blockbuster drug, Zepbound.

Retatrutide is a once-weekly injected drug designed to mimic

the action of the GLP-1 hormone, which helps regulate blood

sugar, slow stomach emptying and decrease appetite.

The drug activates three hormone receptors - GLP-1, GIP and

glucagon - earning it the nickname "triple G". Triple-G weight

loss drugs are expected to produce greater weight loss than

earlier generations by combining appetite suppression, blood

sugar control and increased calorie burning.

Lilly is also developing its weight-loss pill, orforglipron,

which the company expects to launch in the second quarter of

this year once it gets approval from the U.S. Food and Drug

Administration.