Pharma giant Eli Lilly (LLY 0.80%) continues its march forward. Although its share price dropped at the beginning of the year, the company has now recouped its losses -- and then some -- and it keeps delivering the same kinds of impressive returns it did last year, even amid challenging economic and market conditions.
More recent developments highlight the strength of Eli Lilly's investment thesis, and it isn't the company's first-quarter update. Let's look into one excellent reason the company is such an attractive long-term prospect.
NYSE: LLY
Key Data Points
Mixed results with a healthy dose of good news
Eli Lilly announced its Q1 results on April 27. The company's revenue during the period declined by 11% year over year to $7 billion, while its earnings per share of $1.49 dropped by 29% compared to the year-ago period. In fairness, digging a bit deeper reveals a slightly different picture. Eli Lilly's sales of coronavirus medicines are declining as the demand for these products has decreased compared to last year.
Eli Lilly's top line increased by a solid 10% year over year, excluding its COVID-19 products. That's an excellent sign for the company's future as it signals that revenue growth should be strong once the coronavirus-related effects on its financial results subside. And on the same day it released its latest quarterly update, Eli Lilly announced good news from the clinic that matters for the company's long-term prospects.
The drugmaker reported that its newest diabetes medicine, Mounjaro, which was approved in May 2022, hit it out of the park in a phase 3 clinical trial in managing obesity in diabetes patients. Those taking Mounjaro in the study experienced an average body weight reduction of 12.8% for the 10 mg cohort and 14.7% for the 15mg group, compared to just 3.2% for patients taking a placebo, following 72 weeks of treatment.
This study is the second in a round of several late-stage studies Eli Lilly is running to test the efficacy of Mounjaro in helping patients lose weight. It delivered similarly impressive results in the first of these clinical trials. The company expects results from two more of these studies later this year.
Why it matters for Eli Lilly's prospects
Some investors could shrug at the success Mounjaro recently experienced in this latest clinical trial. After all, drugmakers the size of Eli Lilly routinely record similar positive news. What's so special about this one?
The answer is that Mounjaro is projected to become Eli Lilly's most important product for years to come. Last year, some analysts estimated that it could generate as much as $25 billion in peak annual sales. There are well-established and high-performing pharmaceutical companies whose annual sales don't come close to that number. Here's another way to contextualize it. AbbVie's Humira is the best-selling product in the industry's history, and it reached peak annual sales of "only" $21.2 billion.
So Mounjaro's potential is breathtaking, but to meet or exceed these lofty expectations, it will have to earn plenty of label expansions. Or put differently, it will have to deliver positive results from the clinic consistently. Mounjaro's latest results were a step in this direction. Of course, there remains plenty of work ahead for Eli Lilly, but it's worth noting that Mounjaro has already made tremendous progress in terms of revenue despite only being approved last year.
In Q1, the medicine's revenue was $568.5 million. It was Eli Lilly's fourth-best-selling product, even overtaking plaque psoriasis therapy Taltz, which has been one of Eli Lilly's better-performing drugs lately. Mounjaro should become Eli Lilly's best-selling product relatively soon. This therapy symbolizes Eli Lilly's greatest strength: its pipeline.
The company has other promising programs that could also earn approval soon, including donanemab for Alzheimer's disease. Investors should keep monitoring Mounjaro's clinical trial results as the medicine's continued success and Eli Lilly's other key candidates could help the company deliver excellent financial results for a long time.
That's what makes the company's stock a buy despite the relatively unimpressive financial results it has posted in the past two quarters.
