Eli Lilly (LLY 0.03%) stock has soared a whopping 125% over the past year. And the big pharma player has become one of the heaviest-weighted shares in the S&P 500, joining the ranks of top tech companies like artificial intelligence (AI) chip giant Nvidia and iPhone maker Apple. In fact, this drugmaker with double-digit revenue gains is starting to look more and more like a growth stock.
Why is Lilly so hot these days? The company is selling one of today's most sought-after products: weight loss drugs. But not just any weight loss drugs. Lilly commercializes a class of drugs known as glucose-dependent insulinotropic polypeptide (GIP) and glucagon-like peptide-1 (GLP-1) receptor agonists. And these drugs -- Mounjaro and Zepbound -- are delivering soaring revenue as they help people worldwide shed extra pounds.
That sounds terrific, but considering Lilly's gains, you may be wondering if it's now too late to get in on this high-growth pharma stock. Let's find out.
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Lilly's new products and growth products
First, let's take a quick look at the complete Eli Lilly package. The big pharma player sells a wide variety of drugs, from diabetes treatments to immunology and neuroscience drugs. Among these, new products and others Lilly defines as "growth products" are driving revenue gains. In the most recent quarter, revenue from new products climbed by more than $2.1 billion, and growth products delivered a 9% increase in revenue.
While some of the growth products face patent expiration over the next few years, others remain protected until later this decade and beyond. This is key because it shows Lilly's growth isn't tied to older medicines or to just one product but instead to a broad variety of drugs that can boost the top line in the coming years.
Together, Lilly's drugs generated a 28% increase in revenue during the quarter to more than $9.3 billion. And that helped the company deliver a double-digit gain in net income to more than $2.1 billion.
So, it's fair to say that a number of products are contributing to Lilly's solid performance. But, as I mentioned earlier, the weight loss drugs, based on the molecule tirzepatide, are the crown jewels of the Lilly portfolio, and this could continue for quite some time. Doctors have been prescribing Mounjaro -- officially approved for type 2 diabetes -- for weight loss, and that has translated into great gains for the product. It brought in about $5 billion last year.
A potential blockbuster
Regulators approved Zepbound specifically for weight loss later in the year, and in just the first few weeks on the market, the product generated $175 million -- an indication that Zepbound likely will join Mounjaro in blockbuster drug territory.
Demand for these products and rival ones sold by peer Novo Nordisk have met with soaring demand, and the companies have had to ramp up production in an attempt to keep up. This momentum may be far from over. The global weight loss drug market may multiply by 16 to reach $100 billion by 2030, according to Goldman Sachs Research.
Lilly may sell two of the top drugs now, but the company isn't resting on its laurels. It's investigating a weight loss candidate to be given in pill form -- its current drugs are injectables -- and last year reported positive phase 2 data. Adults given the candidate achieved as much as 14.7% mean weight loss after 36 weeks.
And Lilly is investigating another candidate -- retatrutide -- that could be even more efficacious than its current products. Mounjaro and Zepbound act on GIP and GLP-1, hormones involved in the digestive process. But retatrutide acts on both of those as well as on a third hormone. In phase 2 studies, retatrutide resulted in mean weight reduction of as much as 17.5% in 24 weeks.
A high valuation
Now, let's get back to our question: Even though all of this sounds fantastic, is it too late to buy Lilly stock? After all the stock now trades for 62x forward earnings estimates, which looks pretty expensive for a pharma company.
Still, it's important to look at the company's long-term picture, and by this, I mean growth potential over the coming five to 10 years. The forward P/E calculation uses earnings estimates for next year, so it's rather short term.
Through the long-term lens, Lilly's growth in the weight loss market may just be getting started, because of the forecast for global demand as well as the company's research and development efforts that could result in even better products over the coming years. It's also important to remember that other drugs, as mentioned above, are driving growth at Lilly too. And that means, for the long-term investor, it's not too late to pick up some shares of this top pharmaceutical player.
