Eli Lilly (LLY 0.41%) has been firing on all cylinders over the past two years and recently became the first healthcare company to hit $1 trillion in market value. The drugmaker owes much of that performance to tirzepatide, a medicine marketed as Zepbound for weight loss. Sales of this drug have been growing incredibly rapidly, enabling Eli Lilly to post excellent financial results.
However, the drugmaker recently announced that it was cutting the price of Zepbound, and the stock dropped as a result. Should investors buy the dip? Or does this news make Eli Lilly's shares less attractive?
The rationale behind the move
On Dec. 1, Eli Lilly announced that it was decreasing the prices of Zepbound single-dose vials for out-of-pocket patients who have received valid prescriptions for the medicine. The cost will now range from $299 to $449 per month, compared to the previous range of $349 to $499. Eli Lilly will offer the drug at these prices through its own online health platform.
Image source: Getty Images.
Notably, this follows successful efforts by the Trump Administration that inked deals with Eli Lilly to lower the price of Zepbound for eligible Medicare and Medicaid patients. There are likely several reasons the pharmaceutical giant made this decision.
First, price has been a significant deterrent for patients seeking access to this drug. Its efficacy has never been in question, but for those who don't have insurance coverage for Zepbound for weight loss, paying out of pocket is a challenge. By lowering the price of the therapy, Eli Lilly will expand its access. And the increased sales volume might somewhat offset the lower cost.
Second, Eli Lilly's only noteworthy competitor in the weight management space, Novo Nordisk, has also recently cut the price of its popular anti-obesity drug, Wegovy. Although Eli Lilly's Zepbound has been winning market share, cash-paying patients may gravitate more toward Wegovy if it costs them significantly less money. Eli Lilly is countering that possibility by lowering the price of Zepbound.
Is it time to buy the stock?
Some investors may be concerned that Zepbound's pace will slow, given the medicine's new lower prices for cash-paying patients. And considering Eli Lilly's shares aren't cheap -- the stock trades at 33.3 times forward earnings, versus an average of 18.2 for the healthcare industry -- any perceived threat to its most important growth driver is almost always going to sink its share price.
NYSE: LLY
Key Data Points
That said, not much has changed for Eli Lilly's long-term prospects. Consider the company's pipeline progress that could help it strengthen its hold in weight management. Eli Lilly is racing toward approval for orforglipron, an oral weight loss medicine that will further expand access to this category of drugs, since pills are cheaper and faster to manufacture.
Orforglipron isn't as effective as Zepbound, but it should attract a meaningful number of patients, especially those who don't have insurance coverage and prefer pills over needles. Eli Lilly is also inching closer to releasing results from pivotal clinical trials for another highly promising weight loss medicine: Retatrutide.
This therapy, which mimics the actions of three separate gut hormones (Zepbound does two), resulted in weight loss comparable to that seen with bariatric surgery in a phase 2 study. Retatrutide could be a good option for patients with a very high Body Mass Index who need aggressive weight loss and aren't eligible for (or prefer not to undergo) surgeries. Eli Lilly plans to share topline data from an ongoing trial for retatrutide before the year closes.
These and other candidates should help solidify Eli Lilly's leadership in this niche. In the meantime, sales and earnings will continue to grow at a steady pace. Eli Lilly posted revenue of $17.6 billion in the third quarter, up 54% compared to the year-ago period. Adjusted earnings per share soared 495% year over year to $7.02.
With results like these, Eli Lilly is well worth a hefty premium, especially when considering the company's significant pipeline progress in areas beyond diabetes and obesity, its investments in artificial intelligence, and its efforts to bolster its local manufacturing capacity to mitigate the impact of tariffs.
All these factors make Eli Lilly's shares very attractive despite the recent Zepbound-related developments.
