Eli Lilly's (LLY +0.80%) stock price has increased by approximately 35% over the past year. It has risen nearly 200% over the past three years. And it has rallied more than 500% over the past five years. If you bought this stock five years ago, you have benefited from its skyrocketing rise. What's behind this performance, and can it last?
Eli Lilly takes the lead from Novo Nordisk
The big story surrounding Eli Lilly is its leading position in the GLP-1 weight loss drug market. Its two GLP-1 drugs, Mounjaro and Zepbound, have been massive hits. In fact, in the third quarter of 2025, Mounjaro's sales rose a huge 109% year over year. That astounding growth was eclipsed by Zepbound, which saw sales increase a shocking 185% in the quarter.
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Sales of Mounjaro and Zepbound have been such a powerful driver of Eli Lilly's performance that they made up 57% of the company's sales in the third quarter of 2025. What's interesting here is that Eli Lilly was actually the second pharmaceutical company to market with a GLP-1 drug. The first to market was Novo Nordisk (NVO 0.10%).
The facts just laid out set the stage for the story behind the hidden risk that investors face with Eli Lilly's soaring stock. The unfortunate part is that the risk is, really, just business as usual in the highly competitive, technical, and regulated healthcare sector.
What happens if Eli Lilly isn't the GLP-1 king?
It is clear that Wall Street is rewarding Eli Lilly for its dominance in the GLP-1 space. While the stock's 53 times price-to-earnings ratio isn't out of line with its five-year average for this metric, it is far above the average pharma stock's P/E of around 30 times. If that dominance were to be challenged or lost, investors would likely react by repricing the shares, ultimately affording them a lower valuation.
NYSE: LLY
Key Data Points
The first sign of such a threat is already here, as Novo Nordisk received FDA approval to sell a pill version of its GLP-1 drug. GLP-1 shots have been a bit hit, but people prefer pills over shots. It wouldn't be surprising to see Novo Nordisk's pill regain some market share from Eli Lilly. This type of innovation is relatively common in the pharmaceutical industry. Eli Lilly's GLP-1 offering was, basically, just a better product, and it quickly gained a leading market position.
There's a very real possibility that Eli Lilly's GLP-1 drugs could lose ground to a more effective weight loss drug or a more convenient delivery method. To be fair, Eli Lilly isn't sitting around doing nothing. It is also working on a pill, but so are other companies.
For example, Pfizer (PFE 1.02%) just acquired a company with a promising weight-loss drug pipeline, and it agreed to distribute a Chinese company's GLP-1 pill if that pill is approved.
NYSE: NVO
Key Data Points
This risk is exacerbated by the fact that Eli Lilly is so heavily reliant on GLP-1 drugs Mounjaro and Zepbound to support its top line. However, there's a risk to consider even if Eli Lilly remains the dominant GLP-1 company. Pharmaceutical companies are granted a time-limited period of exclusivity to sell drugs they discover. That's meant to help the companies recoup the costs of developing important drugs. When patent protection expires, however, companies often face what is known as a patent cliff.
A patent cliff occurs when generic versions of a blockbuster drug begin to pull sales away from the original blockbuster. While Eli Lilly has a while to go before it faces a patent cliff with Mounjaro and Zepbound, it is inevitable that it will eventually face one. Given the importance of these two drugs to the company's income statement, the loss of patent protection will pose a significant problem.
Enjoy the ride with Eli Lilly while it lasts
While there is no way to predict the future, Eli Lilly faces very clear risks. None of the risks, however, is unusual for a drug company. The major issue is that the risks are exacerbated by the significance of Mounjaro and Zepbound to Eli Lilly's business. If you own or buy Eli Lilly because of its leading position in the GLP-1 drug space, you should carefully consider a future in which the company's GLP-1 drugs aren't as important to the world and the company as they are today.
