If you bought Eli Lilly (LLY 2.26%) shares five years ago, you are sitting on some massive gains. The stock is up over 470% compared to a gain of roughly 85% for the S&P 500 index and a roughly 4% advance for the average pharmaceutical stock. Should you hold on to a big winner like this one or take your gains and move on? Here are some important facts to consider.
Eli Lilly's GLP-1 conundrum
Novo Nordisk (NVO 2.09%) was first to market with a GLP-1 weight loss drug. This class of medications represents a significant advancement that helps people lose weight without having to follow the traditional diet and exercise protocols that are usually the fallback. There are negatives to consider, such as the loss of muscle mass that comes along with the loss of weight, but for many people, GLP-1 drugs have been a huge help.
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As with most medications, however, Novo Nordisk wasn't the only pharmaceutical company doing research in the GLP-1 space. Eli Lilly's weight loss drugs, Mounjaro and Zepbound, were second to market but were better received. Eli Lilly is now the leader in the GLP-1 niche. It has been a significant boon for Eli Lilly's business, as these two drugs accounted for 54% of the company's revenue through the first nine months of 2025.
The success of Eli Lilly's GLP-1 drugs is a mixed blessing. The income statement's top line grew a huge 46% year over year through the first three quarters of 2025. But most of that growth came from just two drugs. Given the still significant potential for GLP-1 drugs, investors are excited by the success Eli Lilly is currently experiencing. But that success could end sooner than many investors suspect.
For starters, new drugs are provided with time-limited patent protections. Generic competition typically enters the market when patents eventually expire, leading to what is known in the industry as a patent cliff. Essentially, the generic versions of a drug are cheaper and take share from the brand-name drug. Eli Lilly's patents still have years to run, but at some point, Mounjaro and Zepbound won't be the blockbuster drugs they are today.
NYSE: LLY
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Eli Lilly is aware of this fact, which helps explain why it acquired Adverum Biotechnologies in late 2025 and just agreed to buy Ventyx Biosciences in early 2026. Basically, management is using the GLP-1 windfall to build up its drug pipeline in preparation for the day when the good times fade.
Science doesn't stand still
This is the long-term picture that investors need to keep in mind. There's a short-term problem facing Eli Lilly right now. Specifically, Novo Nordisk just introduced a pill version of its GLP-1 drug. Mounjaro and Zepbound are shots. People generally prefer pills to needles. It wouldn't be shocking to see Novo Nordisk's pill take share from Eli Lilly's GLP-1 drugs. This type of technological advancement is normal for the constantly evolving healthcare sector.
To be fair, Eli Lilly is also working on GLP-1 pills. So it may be able to fend off this competition. However, Pfizer (PFE 1.65%) is also working on GLP-1 drugs and has a partnership lined up to distribute a GLP-1 pill for a Chinese company if that drug is approved. Basically, Eli Lilly's industry-leading position in GLP-1 drugs is already under attack, and that's not going to change anytime soon.
NYSE: PFE
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This presents a potential problem for Eli Lilly shareholders, as the stock's price-to-earnings ratio is a lofty 52. That's slightly below its five-year average of 54, but much higher than the 28.4 P/E multiple for the S&P 500 index, which is trading near all-time highs -- and far ahead of the roughly 10 P/E for the average pharma stock. Investors are pricing a lot of good news into Eli Lilly's shares right now despite the potential risks it faces as a business.
What do you do with Eli Lilly's stock?
If you care at all about valuation, you'll likely be better off exiting your Eli Lilly position. It is clearly expensive on an absolute basis. If you don't follow the healthcare sector closely, you should step back and consider what happens when, not if, Eli Lilly's GLP-1 drugs aren't the revenue gushers they are right now. Again, you might decide that taking profits makes sense.
To stick around at this point, you need to believe that Eli Lilly can defend its GLP-1 position in the near term. And that it can find new drugs with enough potential to offset the revenue declines that will come as its GLP-1 drugs eventually face a patent cliff.
