Pharmaceutical powerhouse Eli Lilly (LLY +3.30%) had a banner year in 2024. The company's sales surged 32% to over $45 billion on massive growth from its GLP-1 agonist products, Mounjaro for treating type 2 diabetes and Zepbound for chronic weight management. Due to this growth story, the stock has ripped off over 180% in gains over the past three years.
Lately, however, Eli Lilly's stock has cooled. Shares have been essentially flat since July 2024.
The market for GLP-1 agonists could be evolving, and Eli Lilly has a high-stakes opportunity to dominate it over the coming year. Where might Eli Lilly be in a year, and should investors buy the stock now?
Here is what you need to know.
Eli Lilly's potential game changer in the GLP-1 agonist market
The market for GLP-1 agonists is red-hot. Some experts believe annual sales of the popular drugs will grow to $150 billion by 2030 -- these weight loss drugs work by slowing digestion in the body and suppressing appetite. GLP-1 agonists are primarily approved and used to treat type 2 diabetes and chronic obesity. In addition, some patients are taking them to treat sleep apnea and reduce the risk of cardiovascular disease.
Today, Novo Nordisk and Eli Lilly dominate the GLP-1 agonist market. Based on Novo Nordisk's estimates, Eli Lilly's market share is approximately 34%.
However, that could change. The leading GLP-1 agonist products, Novo Nordisk's Ozempic and Wegovy (semaglutide) and Eli Lilly's Mounjaro and Zepbound (tirzepatide), are administered via injections. Eli Lilly is working on a new drug, orforglipron, an oral tablet taken once daily, with no dietary restrictions. It's in clinical trials, seeking approval to treat type 2 diabetes and obesity. Eli Lilly is expected to release late-stage trial data this year, and, assuming success, the FDA could approve the drug by the end of 2026.
For most patients, an oral tablet is far more convenient than injections. If Eli Lilly's oral GLP-1 agonist spends meaningful time on the market as the only approved oral drug, it could significantly shift market share. Pfizer is also working on an oral GLP-1 agonist but could be a year behind in development.
Eli Lilly's total sales between Mounjaro and Zepbound were slightly under $16.5 billion in 2024. If Eli Lilly increases its share in this ballooning industry, there is an opportunity for tremendous growth over the next five years.
Weighing the company's fundamentals versus the stock price
NYSE: LLY
Key Data Points
The stock's plateau since the summer has given the business time to burn off an expensive valuation. Eli Lilly's price-to-earnings (P/E) ratio has dropped from 130 to about 70. At the same time, analysts have lowered their growth expectations, which offsets some of the valuation decline.
Today, the stock's P/E ratio and long-term estimated earnings growth rate translates to a PEG ratio of approximately 2.5. That's the maximum valuation I generally pay for high-quality stocks, and I prefer to buy lower.
LLY PE Ratio data by YCharts
The market tends to look to the future, so these estimates likely include continued momentum from Eli Lilly's GLP-1 agonists, including presumed FDA clearance for orforglipron.
Where will Eli Lilly be in a year?
The stock's price action over the next year could depend on orforglipron's upcoming trial data readout. Eli Lilly's business spans beyond GLP-1 agonists, but it could be the first company to sell an oral GLP-1 agonist, so investors are watching that.
Eli Lilly's hefty valuation signals that the market expects positive news from the trials, which limits the stock's short-term upside. Assuming all goes well, I don't think Eli Lilly's stock price will dramatically differ a year from now. The business could continue growing, steadily bringing the stock's valuation down to a more attractive level.
On the other hand, there is a risk of dramatic declines if orforglipron doesn't perform well. The market aggressively sold off Novo Nordisk recently after its upcoming drug, cagrisema, passed its trial but with underwhelming efficacy. Today, Novo Nordisk stock trades at a hefty discount to Eli Lilly.
It's hard to call a stock a buy when there is more risk than potential reward. Therefore, investors should hold off on Eli Lilly until the stock price declines further or the company makes it through the orforglipron trials without any negative surprises.
