One of the biggest growth narratives in the pharmaceutical industry right now is about weight loss medications. Glucagon-like peptide-1 (GLP-1) agonists such as Ozempic, Wegovy, Rybelsus, Mounjaro, and Zepbound are becoming ever more popular among diabetes and obesity care patients.
All of these medications are made by just two companies: Novo Nordisk and Eli Lilly (LLY 0.80%). For now, Novo Nordisk is the 800-pound gorilla in the GLP-1 arena. But Lilly has made significant strides over the last couple of years, and I think its momentum is about to be supercharged.
Let's dig into Lilly's latest move concerning Zepbound, its blockbuster drug for chronic weight management, and assess why now could be a lucrative time to scoop up some shares.
NYSE: LLY
Key Data Points
What did Eli Lilly just do with Zepbound?
Although GLP-1 medications have helped millions of people around the world, they do have some downsides. Not all health insurance plans include coverage for treatments such as Mounjaro or Zepbound. While this doesn't outright prohibit access to GLP-1 drugs, it leaves patients in a tough position, with their best option typically to pay out of pocket. This can cost nearly $1,000 per month, which is clearly not optimal or even doable for most patients.
A recent announcement by Eli Lilly suggests that the company understands the economic conundrum some patients face. Per a recent press release, Lilly is now offering a four-week supply of 2.5 milligram Zepbound vials for $399, as well as a 5 mg dose for $549.
Image source: Getty Images.
Why this move is significant
Lilly's efforts to make costs more manageable may come none too soon as headwinds from compounding treatments take shape. An alternative to brand-name medications, compounded treatments are sometimes created to replicate FDA-approved products that are in short supply. However, the FDA has warned that poor compounding practices can be compromising to patient health as they may include improper dosages of ingredients or even contamination.
In particular, telemedicine company Hims & Hers Health has been making waves by starting to sell compounded semaglutide through its website. Semaglutide is the primary ingredient in Novo Nordisk's Ozempic, Wegovy, and Rybelsus. According to Hims & Hers' second quarter earnings transcript, the company plans to offer "tirzepatide and liraglutide to the existing compounded semaglutide offering in the near future." Tirzepatide is the main ingredient in Lilly's Mounjaro and Zepbound, while liraglutide is found in Novo Nordisk's Saxenda and Victoza.
You might be wondering why someone would opt for a compounded drug. Well, as alluded to above, out-of-pocket medical expenses can quickly drain your bank account. Depending on your needs and financial position, compounded medications may be a more cost-effective solution. Furthermore, both Novo and Lilly have struggled to fulfill demand for their respective GLP-1's over the last year -- making compounded alternatives a more enticing option for some patients. Both pharma giants have acquired additional manufacturing facilities in an effort to combat supply constraints.
I think Lilly's decision to offer discounted Zepbound has two benefits. Discounting Zepbound signals the company's commitment to bolster its supply output while offering patients an FDA-approved product. Per the press release, these smaller dose vials of Zepbound "not only help us meet the high demand for our obesity medicine, but also broaden access for patients seeking a safe and effective treatment option."
Qualifying patients can access these discounted vials of Zepbound through Lilly's self-pay distribution channel, LillyDirect. This distribution effort "ensures patients and providers can trust they are receiving genuine Lilly medicine, building on the company's efforts to help protect the public from the dangers posed by the proliferation of counterfeit, fake, unsafe or untested knock-offs of Lilly's medications."
To me, Lilly is taking a direct shot at sellers of compounded treatments. Between making the price of Zepbound comparable to what you might be offered from a compounding lab and offering the treatment through a self-pay direct channel, I see little reason to opt for a non-FDA-approved medication.
Is Eli Lilly stock a good buy right now?
I'll concede that valuing Lilly stock is a challenging exercise. Despite some contraction in valuation multiples, a forward price-to-earnings (P/E) ratio of 59 still leaves the stock far from being cheap. I think shares of Lilly have experienced outsize buying activity for two main reasons. First, Mounjaro and Zepbound have proven to be big-time winners for Eli Lilly.
Second, Lilly's Alzheimer's candidate, donanemab, was recently approved by the FDA. This opens up another door for the pharma giant as it seeks further disruption. While donanemab hasn't contributed to Lilly's growth yet, I think the positive news and the prospects of a new market have become baked into the stock to some degree.
LLY PE Ratio (Forward) data by YCharts.
Grand View Research estimates that the total addressable market (TAM) for GLP-1 medications was worth $36.8 billion in 2023. Furthermore, its research suggests that the global GLP-1 market will expand at a compound annual growth rate (CAGR) of 21.6% from 2024 to 2030.
Considering that the TAM for Zepbound is set to continue growing by billions of dollars for years, and that the drug only received FDA approval last November, I'd say that the growth narrative is just beginning. And since Lilly is making access to Zepbound far more achievable, I think it will begin acquiring many more customers.
So even though shares of Eli Lilly are pricey, I still see the stock as a good buy. To me, the long-term narrative is beginning to take shape, and I think scooping up shares of Lilly and holding long-term will prove to be a lucrative decision if you're patient.
