In the first half of 2024, it seemed Eli Lilly (LLY +0.68%) could do no wrong. Unfortunately, the good times didn't last very long. The stock peaked last October and was down by more than 21% when the market closed on Jan. 16.
Is Eli Lilly a good stock to buy on the dip? Here's a look at why it's been beaten down lately to find out.
NYSE: LLY
Key Data Points
Why Eli Lilly stock is under pressure
The latest declines in Eli Lilly's stock price occurred in response to management's presentation at the annual JPMorgan Healthcare conference. On Jan. 14, CEO David Ricks told investors that 2024 sales would come in at about $45 billion. That's about 32% more than it reported during the previous year, but less than he told us to expect a few short months ago.
On Oct. 30, Lilly told investors to expect 2024 revenue to land in a range between $45.4 billion and $46 billion. Sales of the company's diabetes and weight loss treatments are soaring but not quite as fast as the company anticipated in the first half of last year.
Sales of Eli Lilly's lead drug, tirzepatide, which it markets as Zepbound for weight loss and Mounjaro for diabetes, leapt up to a combined $5.4 billion in the fourth quarter. That's some amazing growth for a drug that launched in 2022.
Reasons to hang on to Eli Lilly stock
Compounding pharmacies such as Hims & Hers Health producing their own versions of tirzepatide likely pressured demand for Eli Lilly's branded version in the second half of 2024. The Food and Drug Administration (FDA) allows compounding pharmacies to step in when there's a drug shortage.
Recently built manufacturing centers finally ended the shortage on Dec. 19. Now that Lilly's the only company selling tirzepatide again, forecasting sales growth could be much easier. Also, on Dec. 20, the FDA approved Zepbound to treat obstructive sleep apnea, which could boost demand to new heights.
About a year from now, Lilly could cement its lead in the weight loss medication market. According to Ricks, the company expects approval of an oral weight-loss pill called orforglipron in early 2026. In a phase 2 study, treatment with the oral GLP-1 drug reduced patients' weight by 14.7% after just 36 weeks.
In addition to diabetes and weight loss treatments, Eli Lilly is a big player in the oncology and immunology spaces. Last September, the FDA approved Ebglyss for the treatment of eczema. With less frequent dosing, Ebglyss is expected to compete fiercely with Dupixent, a treatment that racked up over $13 billion in sales last year.
On Jan. 15, the FDA approved Lilly's Omvoh for the treatment of Crohn's disease. In the Vivid-1 trial with patients who didn't respond well to previous drugs, Omvoh helped a majority achieve clinical remission. It probably won't happen overnight, but sales of this treatment could grow past $2 billion annually in a few years.
Last July, Lilly's Alzheimer's disease candidate Kisunla earned approval from the FDA to treat Alzheimer's disease. Intended for early-stage patients with mild cognitive impairment, annual sales of the monthly infusion are expected to top out above $7 billion.
Buy, sell, or hold?
At recent prices, you can buy shares of Eli Lilly for about 33.5 times forward-looking earnings expectations. That's a steep valuation for an established pharmaceutical company.
If you consider how quickly Lilly's sales and earnings could grow, 33.5 times earnings expectations is a bargain. At the midpoint of management's guidance range, top-line sales are expected to soar by 32% in 2025.
With Zepbound, Ebglyss, Kisunla, Omvoh, and possibly orforglipron contributing to growth, this established pharmaceutical giant could grow sales and its bottom line by a double-digit annual percentage for the next several years. With this in mind, now isn't the time to be worried. Holding the stock and buying some more shares looks like a smart move for most investors.
