Eli Lilly (LLY 1.23%) stock is already up by about 90% over the past year, and it could climb even higher. BMO Capital analyst Evan Seigerman recently raised his price target to $1,001 per share, which implies a gain of about 24% from recent prices.
Seigerman recently noted that soaring demand for Eli Lilly's weight management drug, Zepbound, is outpacing supply. The company plans to improve on the current supply shortage, which could benefit Lilly investors in more ways than one.
NYSE: LLY
Key Data Points
Before pouncing on Eli Lilly shares, it's important to remember that sell-side analysts will quietly adjust their attention-getting price targets downward if their predictions don't come true. Repairing the damage a missed call can cause your portfolio isn't so easy. Here's a closer look at Eli Lilly to see if it could be right for you.
Why Lilly's plowing $9 billion into a tirzepatide manufacturing site
Tirzepatide is the active ingredient in Eli Lilly's type-2 diabetes treatment, Mounjaro, and its weight management drug, Zepbound. Last year Lilly committed $3.7 billion to a manufacturing site in Indiana that produces the active ingredient. Recently it raised that commitment by $5.3 billion to $9 billion.
Mounjaro first earned approval from the Food and Drug Administration (FDA) in May 2022, and Zepbound followed last November. The sales explosion these drugs have produced is unprecedented. Combined sales shot up to $2.3 billion during the first three months of the year, and demand is so high that some Wall Street analysts have predicted tirzepatide sales of more than $50 billion annually at its peak.
Tirzepatide's launch has been incredibly successful, but sales would be much higher if Eli Lilly could keep up with demand. This isn't the only reason the company is racing to boost manufacturing. Compounding pharmacies are eating Lilly's lunch and weakening the Zepbound brand.
There are a lot of ins and outs regarding drug shortages and state-licensed compounding pharmacies. Generally, the FDA allows them to make and distribute their own versions of patent-protected drugs during a shortage. Compounded drugs aren't necessarily dangerous, but the risk of receiving the wrong dosage and related issues is significantly greater.
At the moment, the starting dosage of tirzepatide is available. However, the FDA currently allows licensed compounding pharmacies to produce larger maintenance dosages due to limited availability. Folks who want to lose weight don't have to wait for an appointment with their primary care physician, either. Hims & Hers Health, a mail-order pharmacy business with over $1 billion in annual sales, recently began offering compounded versions of tirzepatide and semaglutide, the active ingredient in Ozempic and Wegovy from Novo Nordisk.
Eli Lilly's enormous investment in its tirzepatide facility could quickly end the ongoing shortage and help it catch up with its top competitor in the weight management arena. In February, Novo Nordisk struck up an $11 billion deal to acquire Catalent and its U.S. manufacturing facilities.
A buy now?
Eli Lilly reported a $6.1 billion profit over the past 12 months, and the stock market expects this figure to rocket higher for several more years. The stock has been trading at the nosebleed-inducing multiple of about 59 times forward-looking earnings estimates.
If tirzepatide sales climb to $50 billion, investors who've bought Lilly stock at recent or current prices could realize market-beating gains over the long run. That said, it's a risky stock to buy at such an elevated earnings multiple. If tirzepatide sales can't keep rocketing higher for some unforeseen reason, those investors could suffer heavy losses.
I wouldn't bet against Eli Lilly stock rising to new heights, but it looks too risky at its elevated valuation for most investors.
