2023 was a great year to have money working for you in the U.S. stock market. The S&P 500 index rose about 25%, and some of its components did a whole lot better.
Seasoned investors like owning shares of well-established pharmaceutical companies like Eli Lilly (LLY 0.11%) because patent-protected exclusivity for their products makes them reliably profitable. They aren't, however, generally known for putting up huge gains like Eli Lilly did last year.
The big pharma company helped lift the benchmark S&P 500 index higher with an eye-popping gain of about 59% in 2023, and investors want to know if the company has more fuel in the tank to keep the ascent going.
NYSE: LLY
Key Data Points
New blockbuster drugs made 2023 a banner year for Eli Lilly
The Food and Drug Administration (FDA) gave Mounjaro the green light as a treatment to improve blood sugar control for patients with type 2 diabetes in May 2022. It was the first glucagon-like peptide-1 (GLP-1) drug that also activates glucose-dependent insulinotropic polypeptide (GIP) to earn FDA approval.
We've known for some time that GLP-1 drugs approved to treat diabetes, such as Ozempic from Novo Nordisk, also make people feel less hungry. Multiple studies show that using a GLP-1 that also acts on GIP is an even more effective way to manage weight and blood sugar levels. This advantage helped drive sales of Mounjaro up to $3.0 billion during the first nine months of 2023.
In addition, sales for Eli Lilly's oncology products are on the rise. Verzenio, an adjuvant treatment approved to keep breast cancer from recurring post-surgery, is growing by leaps and bounds. The FDA's recent removal of a testing requirement helped third-quarter sales bound 68% higher year over year to an annualized rate of $4.2 billion.
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Is Eli Lilly stock a good buy now?
We can expect to see that Mounjaro's sales growth subsided in the fourth quarter thanks to the recent approval of its active ingredient, tirzepatide, as a weight-management treatment that Lilly has branded as Zepbound. The FDA approved Zepbound in November, and it's already available in U.S. pharmacies for adults with obesity.
Forecasts regarding Zepbound's revenue potential vary, but most industry experts expect roughly $2.2 billion in 2024 sales, and heaps more at its peak. More than two-fifths of Americans live with obesity, and annual medical expenses for this demographic average $1,851 more than expenses for people in a healthy weight range, according to the Centers for Disease Control. With this in mind, expectations for more than $25 billion in peak annual sales for Zepbound aren't unreasonable.
Zepbound, Mounjaro, and Verzenio aren't the only growth drivers that Eli Lilly shareholders can look forward to. In October, the FDA approved Omvoh, a first-in-class treatment for ulcerative colitis.
The company's clinical-stage pipeline is poised to spew out a stream of new drugs. For example, donanemab is an Alzheimer's disease candidate that passed its pivotal trial with flying colors. The FDA began reviewing an application for it earlier this year, and an approval decision is expected during the first quarter of 2024.
Investors probably don't have to worry about Lilly keeping its pipeline stocked with promising new drug candidates. In the third quarter alone, it acquired four clinical-stage drugmakers and announced an agreement to acquire a fifth.
More exceptional growth ahead?
I expect strong Zepbound sales and an FDA approval for donanemab to push Eli Lilly stock higher in 2024, but investors should be thinking long term when it comes to this stock. Lilly has delivered a 1,320% total return over the past 10 years.
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Eli Lilly didn't make the list of top 10 pharma companies by revenue in 2022, but that wasn't a great list to be a part of. With dividends included, just three of those 10 delivered better total returns than the S&P 500 over the past decade.
The price you pay for a stock factors heavily into the return it can provide you, and these days Lilly shares are trading for the sky-high valuation of 88.6 times the midpoint of management's earnings expectation for 2023. Lilly could grow into its high valuation with help from weight-management drugs and a new Alzheimer's treatment. However, if there's any sign of a slowdown over the next few years, the stock could get cut to shreds.
Expecting another 60% jump in 2024 would be overly optimistic. For investors with a high tolerance for risk, though, this isn't a bad stock to buy now. Just be sure to add it to a well-diversified portfolio.
