Eli Lilly (LLY +0.70%) and DexCom (DXCM 3.66%) have characteristics in common that, in my view, make them monster stocks to buy without hesitation. Over the past five years, each healthcare company has shown strong growth in revenue and earnings per share (EPS). Not coincidentally, both companies' shares are up this year, and up by triple-digit percentages over the past five years.
Both companies also have major tailwinds that should help drive revenue for years. For Lilly, it's the potential in weight-loss drug Mounjaro and Alzheimer's therapy donanemab. For DexCom, profits will be driven by the trend toward greater numbers of diabetes patients and their need for continuous glucose monitoring devices (CGMs).
Eli Lilly's Mounjaro could become the top-selling drug
Eli Lilly has grown steadily, but it has a handful of therapies in the works that could supercharge the company's earnings. Over the past five years, Lilly has seen annual EPS climb by nearly 33% while annual revenue jumped by over 120%. So far this year, Lilly's shares are up a little more than 5%, but over the past five years, they're up by 387%.
NYSE: LLY
Key Data Points
Last year, annual EPS was $6.90, up 13%, with revenue climbing only 1% to $28.5 billion. The company said it expects EPS to rise to between $7.90 and $8.10 in 2023.
The real payoff, though, is on the horizon. The company's drug Mounjaro (tirzepatide) has the potential to be the world's top-selling drug -- replacing Humira, the immunology blockbuster from AbbVie. Mounjaro could be worth $25 billion annually in sales, analysts have said.
Mounjaro, approved to treat type 2 diabetes, is already experiencing rising sales, possibly because it's being prescribed off-label to treat obesity. Since the drug launched last June, it did $279.2 million in sales in less than six months. It's expected to be approved by the Food and Drug Administration (FDA) to treat obesity sometime this year. Lilly's study on obese patients without diabetes showed that the highest dose (15 milligrams) could reduce a person's body weight by 22.5%, an improvement of 5% over the top-selling weight-loss drugs.
If Lilly's lead Alzheimer's therapy, donanemab, is approved by the FDA, it could also be a blockbuster. Derek Asay, Lilly's senior vice president of government strategy and federal accounts, told Reuters that he expects the U.S. Centers for Medicare & Medicaid Services (CMS) to expand payment for Alzheimer's therapies beyond just those patients who are in clinical trials. Analysts have said the therapy could be worth $12 billion in annual sales.
LLY Revenue (Annual) data by YCharts.
The FDA rejected an accelerated approval application for donanemab, which is designed to remove amyloid plaques in the brain that are associated with Alzheimer's. But the drug is in phase 3 trials to treat patients with early Alzheimer's symptoms, and data from one of the trials is expected sometime in the second quarter. The company also has another Alzheimer's drug, remternetug, which is in a phase 3 trial.
One advantage for Lilly's investors is the stock's quarterly dividend of $1.13 per share. The company has increased the dividend for nine consecutive years, including a 15% bump over the past five years. The yield is currently around 1.2%.
DexCom focuses on diabetes care
DexCom does one thing and does it well: developing, manufacturing, and selling continuous glucose monitoring (CGM) systems for diabetes care. The company's newest CGM systems, the DexCom G6 and G7, are compatible with most cellphones. And unlike traditional glucose readers, they don't require users to prick their fingers to draw blood for readings, because the system sensors are inserted under the skin to measure glucose levels continuously.
NASDAQ: DXCM
Key Data Points
There's plenty of competition in the CGM space, but the number of people with diabetes continues to grow, thanks to an aging population, and less-healthy diets and lifestyle choices. According to a study by Grand View Research, the market for CGMs will be around $8.3 billion in 2023; with a compound annual growth rate of 4.4%, it's expected to be worth $11.2 billion in 2023. The key for DexCom's growth is that it's somewhat noncyclical and recession-proof. People use CGMs because they have to.
DXCM Revenue (Annual) data by YCharts.
DexCom reported 2022 revenue of $2.9 billion, up 19%. Guidance puts 2023 revenue between $3.35 billion and $3.49 billion. Net income was $341.2 million in 2022, up 57%, and EPS for 2022 was $0.82, up 55%.
Over the past five years, DexCom's revenue has climbed 97% and EPS has grown by 198%. The stock is up more than 9% this year and more than 329% over the past five years.
The company launched its newest CGM device, the Dexcom G7, in February. On April 17, the device was approved for Medicare coverage; Dexcom said this will add 1.5 million more potential customers.
