Eli Lilly (LLY 1.75%) recently held an end-of-year investor meeting that left its long-term shareholders feeling pretty good about the past 5 years. From Jan. 1, 2017, through Dec. 10, 2021, Eli Lilly stock generated a 270% total return. That was more than any of its big pharma peers during the same time frame.
Can Eli Lilly stock continue outperforming its peers in 2022 and beyond? Let's look at what made the 145-year-old pharma company so successful in recent years to see if it can keep it going.
Image source: Getty Images.
Why Eli Lilly's No. 1
The most important thing to understand about pharmaceutical stock investing is the extremely short-lived nature of intellectual property specific to this industry. Composition of matter patents, the most important ones, are generally good for just 25 years.
Around 10 years is the typical time frame between a new drug's discovery and its commercial launch and it often takes longer. This means big pharmaceutical companies like Eli Lilly need to constantly develop new blockbuster drugs to keep their top and bottom lines moving in the right direction.
Eli Lilly has been the best performing pharma stock of the past five years thanks to several important new drug approvals. For example, Verzenio, a breast cancer tablet first approved in 2017 generated $1.3 billion in sales during the first nine months of 2021, which was a whopping 50% increase over the previous year period.
Catalysts in 2022 and beyond
Sales of a type 2 diabetes treatment Eli Lilly markets in partnership with Boehringer Ingelheim called Jardiance, could see a big boost in 2022. This August the FDA approved it to reduce the risk of cardiovascular death plus hospitalization for a majority of heart failure patients. Heart failure is a leading cause of hospitalization in the U.S. and there is a dearth of effective treatments to keep them healthy.
Tyvyt is a PD-1 inhibitor Eli Lilly jointly developed in China with collaboration partner Innovent Biologics. In December, Tyvyt made it onto China's National Reimbursement Drug List as a first-line treatment for patients with lung cancer and liver cancer.
Keytruda from Merck (MRK 1.49%) is the world's most successful PD-1 drug. It's on pace to generate $18 billion in annual sales and first-line lung cancer patients in the U.S. are a large part of its success. In May, the FDA began reviewing an application for Tyvyt that could make it a potential new first-line lung cancer treatment in the U.S. early next year.
Expectations are really high
In order to outperform its big pharma peers again next year, Eli Lilly is going to need some luck. The company recently raised its dividend payout by 15% but at recent prices, it works out to a yield of just 1.5%.
Eli Lilly's stock price is up near an all-time high right now and trading at around 33.2 times forward earnings expectations. That means investors already expect earnings to grow much faster than average and significantly faster than nearly all of Lilly's big pharma peers.
With lots of growth already baked into the stock price, average performance in the quarters ahead could quickly pull the rug out from Eli Lilly. It doesn't look like a bad pharmaceutical stock to buy right now, but it's probably better to wait for a significant dip first.
