Eli Lilly's (LLY 1.19%) shares have soared over the past year, and for good reason. The drugmaker is a leader in one of the fastest-growing pharma segments today -- the weight-loss drug market. Eli Lilly sells Mounjaro, a type 2 diabetes drug that doctors also have prescribed for weight loss, and the company recently won approval for Zepbound specifically for weight management. Both drugs actually are the same molecule -- the GLP-1 agonist tirzepatide -- but sold under different brand names.
The big pharma company has a broad portfolio of drugs, spanning treatment areas from immunology to neurology, and a deep pipeline of candidates in development, some of which should drive future growth. Still, with shares up more than 90% over the past year and trading near their all-time high, is it too late to buy Eli Lilly stock?
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Lilly's weight loss drugs
First, let's talk about Lilly's star products right now -- Mounjaro and Zepbound -- and what the future may hold for them. Lilly competes with Novo Nordisk, which sells its own similar GLP-1 agonist, semaglutide, under the brand names Ozempic (for type 2 diabetes) and Wegovy (for weight loss). As with Lilly's Mounjaro, doctors also have prescribed Ozempic for weight management.
Both drugs have brought in billions of dollars in revenue for their respective companies, as demand is high for these sorts of products. In fact, demand has surpassed supply, and both Lilly and Novo Nordisk have pledged to ramp up manufacturing infrastructure to meet that demand.
The FDA only recently approved Zepbound, so Lilly hasn't yet reported quarterly sales for that product, but in the third quarter, Mounjaro brought in more than $1.4 billion.
Though Novo Nordisk was first to market with this type of weight-loss product, Lilly's sales should continue to see spectacular growth, for a few reasons. First, demand is already so high that even the two companies together haven't been able to fulfill it.
Second, recently published data suggests that Lilly's products may be more efficacious than those of its rival. A real-world study showed that patients taking tirzepatide were three times more likely to reach 15% weight loss than those taking semaglutide. This is according to data compiled by Truveta Research.
Finally, demand for these effective weight-loss drugs is likely to grow sharply from here. Goldman Sachs Research forecasts that the market for them could increase by more than 16 times to $100 billion by 2030.
More than $9 billion in quarterly revenue
It's clear that Mounjaro and Zepbound could continue driving major growth for Eli Lilly. At the same time, it's important to remember this big pharma company doesn't rely solely on these products for revenue. About a dozen drugs across various therapeutic areas brought in a total of more than $9.4 billion in revenue in the most recently reported quarter. And "new" and "growth" products generated more than half of that.
On top of this, Eli Lilly continues to increase its research and development investments, with R&D spending almost doubling from 2018. We've seen this spending has been bearing fruit for the company. For example, $50 billion in R&D spending has equaled a net present value for the portfolio -- excluding tirzepatide -- of more than $100 billion. And with tirzepatide, portfolio value soars to nearly $250 billion. In both cases, Lilly remains above the industry trend line.
All of this sounds great, and points to more growth ahead -- but to what degree is that anticipated growth priced in at Lilly's current valuation? Today, Lilly trades for 53 times forward earnings estimates, so the company is trading at a reasonable level for a growth stock. Generally, we don't think of pharmaceutical companies as growth stocks, though, because their earnings tend to rise at a slower, steadier pace than typical growth companies like technology players, for example.
But in this case, Lilly is delivering and could continue to deliver "growth stock" earnings performance thanks to its leadership in the booming weight-management market. So, while the stock isn't cheap, it remains reasonably priced considering the company's future earnings and share performance potential. And that's why it's not too late to get in on this top pharmaceutical stock.
