Even with the pullback it has experienced this year, Eli Lilly (LLY -1.14%) has crushed the market over the past three years. The company's shares have more than doubled over this period, making it one of the better-performing pharmaceutical giants.
Lilly has several catalysts ahead that could jolt its stock price. But bears might also point to some issues, including increased competition in its core therapeutic areas and rich valuation metrics. How might Eli Lilly perform in the next three years? Let's find out.
Mounjaro and Zepbound will continue their march forward
Eli Lilly's second-quarter revenue jumped by an impressive 38% year over year to $15.6 billion. The drugmaker's best-selling medicines, Mounjaro for diabetes and Zepbound for obesity, are doing much of the heavy lifting. They combined for $8.6 billion in revenue for the period, which was more than half of the company's total top line.
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How will they perform in the next three years? Everything suggests that these therapies will continue their march forward. Here are three reasons why. First, they haven't been on the market for that long. Mounjaro was launched in mid-2022, while Zepbound earned approval in late 2023.
Second, the weight loss market is growing at an incredible pace. Zepbound is already an established leader in that field, and it will continue to ride that wave beyond the next three years.
Third, tirzepatide, the active ingredient in both, should earn label expansions. It's currently awaiting approval for helping reduce the risk of heart failure in certain patients. Tirzepatide is also undergoing mid- and late-stage studies across several other potential indications. So, this compound should continue driving solid top-line growth for Eli Lilly through 2028.
Lilly is looking at potential clinical and regulatory progress
Eli Lilly should also see significant clinical and regulatory progress over the next three years. One of the company's next-gen GLP-1 medicines, orforglipron, completed three phase 3 studies this year across diabetes and weight management. Wall Street was thrilled with the results of two of these trials, while the outcome of one was deemed somewhat disappointing. Even so, orforglipron should earn approval by the end of next year.
Here's the best part. Since orforglipron is an oral medicine, it will be faster and cheaper to manufacture at scale compared to subcutaneous injections like Zepbound, making its commercial opportunity attractive. Don't put it past this medicine to reach blockbuster status within three years.
Another of Eli Lilly's candidates that could make some progress is retatrutide, a potential weight loss medication currently in phase 3 clinical trials. It has the particularity of mimicking the action of three gut hormones, one more than tirzepatide, which may grant it increased efficacy. In a phase 2 study, retatrutide led to an average weight loss of up to 24.2% in 48 weeks, an incredibly promising result.
If Lilly can follow that up with strong phase 3 results, which we should have sooner than 2028, the company's shares will likely jump.
Can Eli Lilly overcome the obstacles?
There's much more to like about the company's lineup and pipeline. But let's now turn to the potential threats it faces.
First is competition. Pharmaceutical companies, both large and small, are seeking to capture a share of the rapidly growing anti-obesity market. This race will only intensify in the next three years. That said, it seems unlikely that any company will catch up to Lilly by 2028 -- or at least, any company other than its longtime rival in diabetes, Novo Nordisk.
Second, most drugs that enter clinical trials never reach the market. And although there's a lot of noise in the weight management space, many pipeline candidates in the field have turned out to be disappointing. Even Novo Nordisk, which had a first-mover advantage over Eli Lilly, has faced significant setbacks -- that's how the latter took the lead. So, even with increased competition, Lilly is poised to maintain its lead through 2028.
Finally, is the stock too expensive? It's trading at around 25 times forward earnings, versus 16.5 times for the average healthcare stock. However, given that the company's revenue and earnings are growing much faster than those of its peers -- which should continue through the next three years -- Eli Lilly has earned a premium.
In my view, the stock should continue outperforming the market through 2028, making its stock an attractive one to purchase now.
