A couple of months ago, I stumbled across a podcast featuring Palantir co-founder Joe Lonsdale and Home Depot co-founder Ken Langone. During their talk, Lonsdale asked Langone several questions related to his investment philosophy. Initially, I thought these questions were a little bizarre. After all, given Home Depot's success over the last several decades, wouldn't it make sense that Langone made his fortune that way?
But, to my surprise, I learned that Langone has been involved with many businesses outside his home improvement empire. Of all things, one company the billionaire has close ties to is pharmaceutical company Eli Lilly (LLY 2.66%). Langone has been a proud shareholder ever since Lilly bought a medical device company he was involved with many decades ago. In fact, rumors are that Langone is the largest individual shareholder of Lilly (although he said that he cannot confirm that for sure).
What is certain, however, is that Lilly stock has brought generational wealth to many investors. Since 1972, shares of Lilly have produced total returns of 100,203%.
Companies that have witnessed this level of success are few and far between. And yet, what if I told you that more growth looks very much in store for Lilly over the next several years?
Below, I'll break down three emerging catalysts in the pharmaceutical industry and explain how Lilly is at the forefront of each.
NYSE: LLY
Key Data Points
1. The GLP-1 narrative is still in an early stage
One of the biggest narratives in the pharmaceutical space right now surrounds weight loss. Glucagon-like peptide-1 (GLP-1) agonists such as Ozempic, Wegovy, Mounjaro, and Zepbound, are just some of the up-and-coming blockbuster drugs in the indication. Two companies dominate the GLP-1 realm right now.
Novo Nordisk makes Ozempic, Wegovy, Rybelsus, and Saxenda, which are approved for treating diabetes and obesity. That roster of treatments has fueled it to the top of the GLP-1 atmosphere for now. Lilly is the developer behind Mounjaro and Zepbound (both of which are formulations of the same compound, tirzepatide), and current demand trends and broader market themes suggest the company is positioned for much further growth.
Grand View Research issued a report that suggests the global total addressable market (TAM) for GLP-1 treatments was worth $36.8 billion in 2023 and forecast that it would grow at a compound annual rate of 21.6% between 2024 and 2030. Furthermore, JPMorgan's forecast is for the GLP-1 market to exceed $100 billion by 2030. JPMorgan also predicts that 9% of the U.S. population could be using a GLP-1 treatment by early next decade.
While the outlook for GLP-1s seems generally bullish, I think there's a chance the estimates above could materially understate their growth potential. Earlier this year, Novo Nordisk received an expanded indication from the Food and Drug Administration (FDA) for Wegovy. Specifically, Wegovy can now be prescribed to treat patients with obesity who also face cardiovascular complexities such as hypertension or risk of stroke.
Lilly might not be too far behind. The company announced earlier this year that it's exploring the possibility that its GLP-1 drugs could add a new indication as treatments for people with obstructive sleep apnea. In the long run, I see GLP-1 medications becoming far more widely used for conditions beyond diabetes and chronic weight management.
Considering that Mounjaro and Zepbound are relatively new drugs on the market, I think Eli Lilly's best days in the GLP-1 industry are very much ahead. Furthermore, I suspect Lilly will get much more aggressive with its marketing campaigns as competition with Novo Nordisk heats up.
Image source: Getty Images.
2. A new $31 billion opportunity
Lilly gave investors another reason to cheer earlier this summer when its Alzheimer's drug, donanemab, received FDA approval.
According to Market.us, the global TAM for Alzheimer's disease therapeutics is currently worth about $6.5 billion, but the research firm forecasts that market will grow at a compound annual rate of 19% between 2024 and 2033 -- putting the estimated market size at around $31 billion by early next decade.
Right now, major players in treating Alzheimer's disease include Biogen and Eisai. Considering that donanemab just received approval a couple of months ago, I surmise that it will take some time before investors begin to see the drug having a material impact on Lilly's growth.
The tailwinds fueling GLP-1 demand and the strong outlook for Alzheimer's disease treatment, combined with limited competition in both spaces, have me thinking Lilly is sitting on a launchpad that should not be underappreciated.
3. Artificial intelligence and the future of healthcare
The last catalyst I think investors should be aware of revolves around the intersection of artificial intelligence (AI) and healthcare. AI is more than just self-driving cars, humanoid robots, and productivity software. An under-the-radar use case is how the technology can move the healthcare industry forward.
Eli Lilly is taking these prospects seriously. The company is working with ChatGPT maker OpenAI to use generative AI to help develop antimicrobial medications that can combat drug-resistant bacteria and pathogens.
Antimicrobial resistance (AMR) is an enormous health concern, one that already impacts millions of people globally. But like many areas in healthcare that warrant high attention, AMR is a complex issue, and finding remedies for it has proven daunting and costly. The World Bank estimates that healthcare costs surrounding AMR could reach $1 trillion by 2050. While that may seem far away, the World Bank also forecasts that AMR could reduce global gross domestic product by up to $3.4 trillion annually by 2030.
While it could be years or even decades before Lilly makes progress in AMR, I am encouraged that the company is thinking about opportunities outside its core markets and how it can continue influencing medicine for the long haul.
