With shares of Eli Lilly (LLY 0.73%) gaining an impressive 59% in 2023, it's no secret investors are eager to learn what the company is aiming for in 2024.
Happily, there are quite a few clues about what's coming next, including from senior management, and the outlook is bright.
NYSE: LLY
Key Data Points
The shopping spree will continue
While speaking at J.P. Morgan's annual healthcare conference on Jan. 9, Eli Lilly CEO David Ricks had a few choice words for the myriad biotech operators in the crowd: "We're open for business on external innovation." He was signaling that Eli Lilly would continue to be on the lookout for attractive opportunities to collaborate on research and development (R&D), perhaps by acquiring promising biotech companies or their pipeline programs outright. But as its shareholders likely already appreciate, such a position isn't anything new.
Late last year, Eli Lilly acquired oncology business Point Biopharma for $1.4 billion. It also inked an agreement worth up to $494 million in milestone payments with Fauna Bio, a private biotech investigating mammalian hibernation for the purpose of developing medicines to potentially treat obesity. And earlier in 2023, it dropped $1.9 billion for Versanis Bio, a biotech pursuing weight loss treatments that might be natural companions for Eli Lilly's recently launched anti-obesity drug, Zepbound.
And those are just a few of its biggest plays. In the last 12 months, Eli Lilly also set up a few other collaborations.
What's new is an aggressive shift in the pharma's approach to what it considers to be within the scope of potentially appealing deals. Whereas before the company focused on acquiring and collaborating with pre-revenue biotechs to bolster its own pipeline, making sure to spend only as much money as was warranted for early-stage programs with slim odds of success, now the CEO is signaling that Eli Lilly is willing to pay up for quality assets, even if they're in later stages of development or perhaps even commercialization stage.
In other words, investors should prepare themselves for the possibility that the company's pace of deal-making will accelerate even further. They should also consider that management may be willing to run down its cash reserves or take on fresh debt in the name of closing the loop on important acquisitions.
There are plenty of catalysts coming up
The more aggressive business development strategy is overall a bullish factor. Being willing to buy out biotechs that are more mature than the typical pharma acquisition target means being able to pick up assets that competitors like Novo Nordisk wish they could have, but which they are afraid of overpaying for.
At the same time, the risk of the company overextending itself is real. Eli Lilly had just $2.6 billion in cash, equivalents, and short-term investments on hand as of Q3, as well as $20.3 billion in debt. While trailing-12-month (TTM) net income near $5 billion means that the company won't be going broke anytime soon, business development volume is no substitute for quality in the long term, and hearing about a slew of its newly purchased programs floundering in clinical trials over the coming years would be unlikely to do its stock price any favors.
The good news is that there are plenty of chances for Eli Lilly to impress the market with positive catalysts in 2024 and beyond. Much like in 2023, the biggest story for the company this year will be about its drug Mounjaro for type 2 diabetes, as well as Zepbound for obesity and its handful of late-stage clinical programs investigating other approaches to treating those conditions. Revenue from both will be scaling up sharply.
And while there's no guarantee, many of the earlier-purchased metabolic disease assets could be entering the clinic too. So be ready for this stock to keep rising in the near term.
