Eli Lilly (LLY +2.32%) wasn't the first to market with a GLP-1 drug. However, its Mounjaro (for diabetes) and Zepbound (for weight loss) drugs have proven more effective than competing products. That's moved Eli Lilly to the head of the pack, but investors may be a bit too excited about the company's prospects. In 10 years, the story around this stock is likely to be very different.
Success is Eli Lilly's big problem
Sales of Mounjaro rose 99% in 2025. Zepbound's sales rose an even more impressive 175%. Eli Lilly is the clear leader in the GLP-1 drug space with these highly successful drugs.
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That's good news, but investors are well aware of the company's success. The stock's price-to-earnings ratio is a very high 44. By comparison, stocks in the S&P 500 have an average P/E of 28, and the average pharmaceutical stock's P/E is just under 23.
Investors excited about GLP-1 drugs have priced a lot of good news into Eli Lilly's stock. Notably, Mounjaro and Zepbound currently account for 56% of the company's revenue and most of its growth. Buying Eli Lilly right now is a bet that the company's GLP-1 success continues.
What about the competition and patent protection?
The problem with buying Eli Lilly at its current valuation is that the pharmaceutical sector has a clear history to look back on. While Eli Lilly is the GLP-1 leader today, Novo Nordisk was first to market with a GLP-1 drug. Eli Lilly's product is more effective and, thus, is selling better. Novo Nordisk is still innovating, and other competitors, like Pfizer, are also looking at the GLP-1 space. Eli Lilly could be knocked from its throne just as easily as Novo Nordisk was, in a highly competitive sector.
NYSE: LLY
Key Data Points
That alone should have investors worried about what Eli Lilly's business will look like in 10 years. But there's an even more specific threat to consider. Drugs are granted patent protection for only a limited period of time. In a decade, Eli Lilly could be staring down generic competition, which would normally reduce the revenue a branded drug generates. Even in the best-case scenario, Eli Lilly's GLP-1 success is time-limited.
Eli Lilly is aware of these issues and is spending today to build its drug pipeline for the future. However, investors buying Eli Lilly at its current valuation need to consider what the future might look like if, more likely when, the company's fortunes turn for the worse.
