Shares of Eli Lilly (LLY 0.38%) have more than doubled over the past 12 months, but Wall Street analysts who watch the big pharma company think it has more fuel in the tank.
For example, J.P. Morgan recently raised its price target on Eli Lilly to $1,000 from $900, citing sales of Mounjaro and Zepbound that keep soaring.
Eli Lilly will most likely report second-quarter earnings during the second week of August. Barclays expects compelling results that could push the pharmaceutical stock up to $1,025 over the next 12 months.
Barclays' price target for Eli Lilly implies a gain of about 9% in the year ahead. Is this a good time to take a chance on this stock or should you wait for a better entry point? To answer, we should weigh reasons to buy the stock against one big reason to remain cautious.
Reasons to buy Eli Lilly stock now
Tirzepatide is the drug that Eli Lilly markets to type 2 diabetes patients as Mounjaro. Last November it earned approval from the Food and Drug Administration (FDA) for chronic weight management under the brand name Zepbound, and it could become the top-selling drug of all time.
But it has competition from Novo Nordisk (NVO 2.34%), with its several forms of semaglutide:
| Manufacturer | Brand Name (Generic Name) | Main Indication | Approved Since | Annualized First-Quarter Sales |
|---|---|---|---|---|
| Novo Nordisk | Ozempic (semaglutide) | Type 2 diabetes | December 2017 | $16.24 billion |
| Novo Nordisk | Rybelsus (semaglutide) | Type 2 diabetes | September 2019 | $2.93 billion |
| Novo Nordisk | Wegovy (semaglutide) | Chronic weight management | June 2021 | $5.48 billion |
| Eli Lilly | Mounjaro (tirzepatide) | Type 2 diabetes | May 2022 | $7.22 billion |
| Eli Lilly | Zepbound (tirzepatide) | Chronic weight management | November 2023 | $2.07 billion |
Data source: U.S. Food and Drug Administration.
Initially launched in 2017, semaglutide has had a lot longer to become known by various brand names. Recognition has been a huge driver of semaglutide sales -- which reached an annualized $24.6 billion in the first quarter.
Tirzepatide is years behind semaglutide, but it's catching up fast, with sales that reached an annualized $9.3 billion in the first quarter. A recently released comparison of electronic health records suggests its differentiated mode of action is an advantage that will help tirzepatide overtake semaglutide soon.
Data gleaned from those health records suggests that overweight and obese patients are significantly more likely to achieve weight loss goals with tirzepatide than with semaglutide. Both treatments engage glucagon-like peptide 1 (GLP-1) receptors, but tirzepatide also acts on gastric inhibitory polypeptide (GIP) receptors.
The outcome differences between Lilly's drug and Novo Nordisk's are striking. The health records suggest that patients were over three times more likely to reduce their weight by at least 15% with tirzepatide. Investigators also noticed that the rate of gastrointestinal side effects was about the same for both treatments.
More than just tirzepatide
Tirzepatide isn't the only drug likely to push Eli Lilly's needle forward in the years ahead. The FDA recently approved donanemab, under the brand name Kisunla, for the treatment of Alzheimer's disease. This is a monthly infusion to be given to patients in the disease's earliest noticeable stages.
Kisunla clears amyloid plaques from the brain. It will compete with a similar drug called Leqembi, from the partners Eisai and Biogen. Fortunately for Lilly, a differentiated dosage method could make Kisunla more popular with patients and physicians. Once Kisunla reduces amyloid plaques to minimal levels, physicians are instructed to consider pausing the monthly infusions.
Reason to remain cautious
Big growth expectations are already baked into Eli Lilly's stock price. In April, the company raised 2024 revenue expectations by $2 billion, and could do so again when it reports second-quarter results in early August.
Management expects adjusted earnings to reach a range between $13.50 and $14 per share this year. The stock has been trading for 68.9 times the midpoint of management's earnings expectation for 2024.
If the only drugs Lilly sold were its brands of tirzepatide, and Kisunla, its sky-high valuation wouldn't be an issue. Unfortunately, it has over half a dozen drugs with first-quarter sales that declined by more than 10% year over year. With many pieces moving in different directions, it's probably best to wait for Eli Lilly's stock price to pull back at least a little before hitting the buy button.
