It's hard to overstate just how successful the expansions of new diabetes treatments into the weight management arena have been for the companies that sell them. In one striking example, the market capitalization of Novo Nordisk (NVO 2.57%), formerly a relatively obscure drugmaker that until recently mostly sold diabetes treatments, recently exceeded the market cap of Tesla.
Eli Lilly's (LLY 1.83%) newest weight management drug, Zepbound, is already on pace to outperform Novo Nordisk's Wegovy. And a new distribution partnership with Amazon (AMZN +0.66%) may accelerate sales of Zepbound even faster.
Could this Amazon Pharmacy partnership make Eli Lilly a smarter stock to buy now?
NYSE: LLY
Key Data Points
Zepbound is going places
Eli Lilly launched tirzepatide under the brand name Mounjaro in 2022 as a type 2 diabetes treatment. Tirzepatide acts on the same GLP-1 receptors as its main rival in the marketplace, Novo Nordisk's semaglutide (Wegovy/Ozempic), and also acts on GIP receptors. In 2023, tirzepatide was given the green light to be marketed for weight loss under the brand name Zepbound.
You don't need to be an endocrinologist to grasp that dual action is an advantage for tirzepatide. Semaglutide has a five-year market lead on tirzepatide, but sales of Lilly's drug are catching up fast.
| Brand Name | Generic Name | Year of FDA Approval | Mode(s) of Action | Main Indication | 2023 Sales |
|---|---|---|---|---|---|
| Ozempic | semaglutide | 2017 | GLP-1 agonist | Diabetes | $14.0 billion |
| Wegovy | semaglutide | 2021 | GLP-1 agonist | Weight management | $1.4 billion |
| Mounjaro | tirzepatide | 2022 | GLP-1 agonist and GIP agonist | Diabetes | $5.2 billion |
| Zepbound | tirzepatide | 2023 | GLP-1 agonist and GIP agonist | Weight management | $176 million |
Data sources: Food and Drug Administration, Novo Nordisk, and Eli Lilly.
Zepbound's better efficacy profile has Wall Street analysts bullish about the drug. In a study with roughly 1,961 obese or overweight patients, after 68 weeks of treatment with Wegovy, participants averaged a 12.4% placebo-adjusted weight reduction. In a similar study with 2,539 patients, those taking Zepbound averaged a 17.8% placebo-adjusted weight reduction.
Zepbound launched in November, but it's already expected to become a megablockbuster for Lilly. Wall Street analysts who follow the pharmaceutical industry closely think total tirzepatide sales could exceed $50 billion annually at their peak. In a particularly bullish forecast, Evan Seigerman from BMO Capital predicted $69 billion in peak annual sales.
When it comes to selling treatments for conditions that affect millions of Americans, Eli Lilly is thinking way outside the box. In January, it launched LillyDirect to simplify the management of obesity, diabetes, and migraine headaches. The tool gives patients access to independent telehealth providers who can help patients get consistent access to Zepbound and other treatments.
The LillyDirect initiative got a big visibility boost recently when it partnered with Amazon Pharmacy. Now, Prime members can receive free two-day shipping for their weight-management treatment from the fulfillment service.
Image source: Getty Images.
More than just weight management
Eli Lilly does a lot more than just develop drugs for diabetes and weight management. Mounjaro is one of six Lilly products that generated over $1 billion in revenue last year.
In recent years, Lilly's success in oncology treatments has been remarkable. For example, Verzenio is a targeted breast cancer treatment that launched in 2017. Annual sales of the blockbuster surged by 56% last year to $3.9 billion. Altogether, Lilly's sales rose 20% in 2023, and a successful Zepbound launch could allow its top line to continue rising by more than 20% annually for several more years.
A buy now?
I'm not the first investor to notice Lilly's potential for growth. The stock has risen by about 134% over the past year and currently trades for about 63 times the midpoint of management's 2024 earnings estimate. It has risen so far that Eli Lilly's dividend offers a dismal 0.7% yield even though the company has more than doubled its quarterly payouts since 2017.
The patents that protect market exclusivity for Mounjaro and Zepbound won't expire until 2036 at the earliest. That gives Lilly a pretty good chance to grow into its lofty valuation.
As such, there is a chance that an Eli Lilly investment now could lead to market-beating gains over the long run. That said, investors need to realize they could suffer heavy losses if any unexpected challenges prevent Zepbound from becoming the highest-selling drug in history.
Dividend-paying pharmaceutical stocks often make appropriate investments for most investors -- but not in this case. Given its high valuation, buying Eli Lilly stock right now is only appropriate for investors with a high tolerance for risk.
