Diabetes and obesity medications are becoming wildly popular. Commercials for them dominate the airwaves on a daily basis -- many produced by Novo Nordisk. This Danish pharmaceutical giant is the developer of glucagon-like peptide-1 (GLP-1) agonists Ozempic, Rybelsus, Wegovy. The success of these drugs has helped Novo Nordisk acquire a nearly 55% share of the GLP-1 market.
But one of Novo Nordisk's fiercest competitors, Eli Lilly (LLY 1.19%), is making notable progress of its own among diabetes and obesity patients. In addition, Lilly has an impressive portfolio that boasts treatments for cancer, plaque psoriasis, psoriatic arthritis, and more. Let's take a look at the catalysts that could fuel long-term growth for Lilly, and assess if now is a good time to buy the stock.
GLP-1 treatments could just be getting started
Eli Lilly's primary diabetes and obesity treatments include Mounjaro, Jardiance, and Zepbound. Mounjaro was approved to treat diabetes in mid-2022, while Zepbound only received clearance from the Food and Drug Administration (FDA) to treat chronic weight management back in November. Nevertheless, these three medications combined for 24% of Lilly's total sales in 2023.
Both Zepbound and Mounjaro are GLP-1 treatments that use the compound Tirzepatide. While each of these blockbuster drugs is in high demand, research suggests the best days are yet to come. According to J.P. Morgan, the GLP-1 market could exceed $100 billion by 2030. In the U.S. alone, the bank is forecasting that 9% of the population could be using a GLP-1 by 2030.
Considering that Mounjaro has only been commercially available for a little over a year, and Zepbound has been on the market for just a few months, the robust long-term outlook for GLP-1 could signal much further gains for Lilly in diabetes and obesity care.
Image source: Getty Images.
Eli Lilly's portfolio is deep
Another major contributor to Lilly's stellar 2023 performance was its cancer drug, Verzenio. Sales for Verzenio rose 56% last year, reaching $3.9 billion. This growth came on the heals of an expanded indication from the FDA, making Verzenio more widely available.
Lilly's fourth-largest revenue stream is its plaque psoriasis and psoriatic arthritis drug, Taltz. Sales from Taltz increased a modest 11% in 2023, reaching $2.8 billion. Although Taltz is not generating rocket-ship type growth for Lilly, the undercurrent here is that it continues to generate respectable growth and it's one of many multibillion-dollar medications in the company's portfolio.
Is Eli Lilly stock worth the premium?
LLY PS Ratio data by YCharts
The chart above illustrates the price-to-sales (P/S) multiple of Lilly benchmarked against a cohort of other leading pharmaceutical companies. At a P/S ratio of 20.9, Lilly is valued at a much higher premium compared to its peers based on this metric.
While the company generated impressive results across the board in 2023, I see some other things at play influencing Lilly's valuation. First, Tirzepatide is currently being tested in clinical trials for indications beyond diabetes and obesity. During the fourth-quarter earnings call, management spoke about successful phase 2 studies for Tirzepatide applications in metabolic dysfunction-associated steatohepatitis.
On top of this, Lilly could be on the verge of entering another gigantic market: Alzheimer's. While approval for its Alzheimer's drug, called donanemab, has not formally happened, Lilly is already running marketing campaigns signaling that the drug could be commercialized very soon.
I think the bullish outlook on Mounjaro and Zepbound, coupled with potential future catalysts in expanded uses for Tirzepatide and donanemab's approval, is fueling some increased buying in Lilly stock.
Although there seems to be some momentum pushing the stock higher, I think Lilly can keep it up. As an investor, I am optimistic about the company's Alzheimer's prospects and also see the current trajectory of Mounjaro and Zepbound as the beginning. Moreover, knowing that it will likely be years until Tirzepatide is being used more broadly and generating significantly more business for Lilly is important to keep in mind.
Using dollar-cost averaging and preparing to hold for the long term could be a good strategy when approaching a growth stock such as Lilly.
