Weight loss drugs, primarily GLP-1 agonists, have taken the healthcare industry and the stock market by storm. Leading pharmaceutical company Eli Lilly (LLY 0.18%) is a significant player in the space, helping explain why the stock has soared 250% over the past three years.
Investors who may want to buy shares have been left wondering if they're too late, or if there's more to Lilly than its headline-grabbing GLP-1 products.
So I dove into the company and came away impressed. While the stock might not be a slam-dunk buy today, here's why you might want to pay close attention to Eli Lilly.
Breaking down the GLP-1 opportunity
GLP-1 agonists -- chemicals that activate a receptor to produce a biological response -- slow the digestive system, making people feel fuller for longer. As a result, people lose weight because they eat less.
Obesity has plagued consumers in developed countries for decades and is a factor in several of the leading causes of death, including heart disease, diabetes, and cancer. While many people simply want to be thinner, the health benefits of weight loss add to the appeal of using GLP-1s.
NYSE: LLY
Key Data Points
Eli Lilly's GLP-1 products Mounjaro and Zepbound combined to bring in roughly $2.3 billion in the first quarter. Most of those sales have come from Mounjaro, since Zepbound only received approval from the U.S. Food and Drug Administration (FDA) in November. Between the two, 2024 sales could realistically surpass $10 billion. Analysts believe the total GLP-1 market will approach $50 billion this year, meaning Eli Lilly has around 20% market share -- despite an ongoing GLP-1 shortage that's temporarily allowing pharmacies to sell compounded alternatives outside patent restrictions.
Long-term growth prospects look excellent. Eli Lilly is investing in increasing production capacity, which should help it keep up with demand. It could also increase its market share once the shortage ends and patent protections kick back in. There are over 1 billion obese people worldwide, so this is a tremendous long-term opportunity that could play out over the next couple of decades. Mounjaro's compound patent doesn't expire until 2036.
A robust pipeline to drive strong sales growth
Eli Lilly boasts an impressive product portfolio, filled with fast-growing products poised to fuel strong revenue growth.
Revenue from key drugs combined for $5.6 billion in Q1, roughly two-thirds of the company's total sales. These treatments include Mounjaro (diabetes), Trulicity (diabetes), Verzenio (breast cancer), Jardiance (diabetes), Taltz (autoimmune disorders), Humalog (diabetes), and Zepbound (weight loss). This group grew sales 26% year over year in Q1 despite Trulicity, Eli Lilly's top-seller last year, falling 26% due to supply shortages and competition.
Trulicity's compound patent expires in 2027, meaning it will face more competition from generics. Patent expirations are the main threat to any pharmaceutical company, so it's great to see enough momentum from other products to still drive such strong growth.
Analysts believe Eli Lilly will generate $43 billion in sales this year, a 26% increase over 2023, and surpass $100 billion in sales by 2031. It's important to take long-term estimates with a grain of salt. Still, they underline the expected growth coming from rising star products like Mounjaro and Zepbound and upcoming potential blockbusters like Kisunla, which was recently FDA-approved to treat early symptomatic Alzheimer's disease.
Is Eli Lilly stock a buy?
The future is bright. However the stock has charged higher over the past few years, so investors must determine how much the share price already reflects future prospects.
Such wonderful investment returns have also made the stock more fundamentally expensive. The GLP-1 success is huge, but even doubling estimates for Eli Lilly's long-term growth can only do so much. Shares still trade at over 60 times Lilly's estimated 2024 earnings per share (EPS) today:
LLY EPS LT Growth Estimates data by YCharts.
Eli Lilly isn't unreasonably expensive if it can grow earnings by 40% annually over the long term. The problem is that this is a tall order, and doesn't leave much room for things to go wrong. What if Lilly's market share declines? Roche recently tested (with promising results) a GLP-1 product that's taken orally instead of injected.
So, while Eli Lilly is a best-in-show pharmaceutical stock, you could be wise to wait for a better entry price before investing. The current price virtually demands perfect execution. Increased competition in the GLP-1 market, or other setbacks, could be disastrous for the stock if investors lose confidence in buying at such a high valuation.
