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Eli Lilly (LLY +0.00%) has been a terrific investment in recent years. Thanks to significant clinical progress and outstanding financial results, the company has become the largest healthcare player in the world: Eli Lilly's market cap was about $684 billion as of close of trading Aug. 1.
That's some distance away from the $1 trillion mark. However, the drugmaker could become a $2 trillion stock within seven years. Here's why Eli Lilly could pull it off.
The market for weight management medicines has become one of the fastest-growing in the industry, and there's more to come. According to some projections, it could reach $150 billion in sales by 2035, up from $15 billion last year.
Eli Lilly is already imposing itself in this niche. The company's weight loss therapy, Zepbound, is one of the best in the business. It proved more effective in a head-to-head clinical trial with its only noteworthy competitor, Novo Nordisk's Wegovy. And Zepbound's sales are growing incredibly rapidly, helping Eli Lilly deliver incredible top-line growth for a pharmaceutical company of its size. But there's more.
Lilly is looking to dominate nearly every corner of the weight management drug market by addressing the shortcomings of its current crown jewel. Here's one such drawback: Although Zepbound is highly effective, it's administered subcutaneously once a week. Some patients might prefer an oral option rather than an injection.
Enter orforglipron, an oral GLP-1 medicine Eli Lilly is developing. The drug recently hit it out of the park in phase 3 studies, although that was in patients with diabetes and focused on lowering A1C levels. Still, weight loss numbers for orforglipron in that trial were encouraging. Lilly plans to release data from its late-stage clinical trials for the medicine in weight management by the end of the year.
Here's another shortcoming of Zepbound: Its once-weekly dosing schedule is inconvenient for those who would prefer long-acting anti-obesity therapies that are administered less frequently. In May, Lilly made a move to address that issue as well. The company signed a deal with Camurus, a Swedish pharmaceutical company that uses its proprietary FluidCrystal technology for the long-acting delivery of drug compounds.
Yet another of Zepbound's shortcomings is muscle loss, which Eli Lilly's bimagrumab can help address. In a 72-week phase 2 study, patients taking bimagrumab in combination with Wegovy experienced an average weight reduction of 22.1%, with 92.8% of that attributable to fat loss. Patients on Wegovy alone experienced a 15.7% decrease in weight, 71.8% of which was from fat loss.
I haven't even discussed other promising candidates in the company's pipeline, such as retatrutide. This investigational medicine mimics the action of three gut hormones, one more than Zepbound, which was already a breakthrough. Retatrutide could prove even more effective for that reason and, if approved, could be the first of its kind.
Lilly could dominate the weight management market from nearly every angle. Its leadership in this field could yield significant clinical and regulatory milestones, helping it grow revenue and earnings incredibly rapidly over the next seven years, pushing its stock to more than double.
Eli Lilly's portfolio of approved products and its pipeline extend beyond weight management products. Its diabetes lineup remains among the most impressive, with brands such as Mounjaro (which shares Zepbound's active ingredient), Jardiance, and Humalog. The company's oncology product Verzenio is performing well, as is Taltz, a medicine for plaque psoriasis. And in immunology, its recently approved medicine Ebglyss could go on to reach blockbuster status. So could Kisunla, a medicine for Alzheimer's disease.
The drugmaker's pipeline still features plenty of exciting products in oncology, immunology, and rare diseases. Its gene therapy for a form of genetic deafness looks promising. Even without Mounjaro, Lilly would have an impressive lineup and pipeline.
All of that helps justify the company's valuation. Lilly's forward price-to-earnings ratio of about 37 looks high in comparison to the healthcare industry's average of 16.5, but given the company's fast-growing sales and profits, as well as its deep pipeline and strong dividend program, its valuation looks reasonable.
In my view, Eli Lilly is likely to outperform the market and achieve the growth it needs through the end of 2032 to become a $2 trillion stock.