Eli Lilly (NYSE: LLY) has had a phenomenal year, with shares climbing almost 35% since January 2024 and almost doubling over the past 12 months. This pharmaceutical giant is not only the largest drugmaker by market cap but also the biggest company in the healthcare sector. Despite its impressive growth, the question remains: has Lilly reached its peak? Here’s why I believe the stock remains a compelling buy.
1. Unprecedented Growth Ahead for Mounjaro and Zepbound
The unprecedented demand for Mounjaro and Zepbound, Eli Lilly’s type 2 diabetes and weight loss drugs, has outstripped production despite the company’s significant ramp-up efforts. In Q1 2024, sales for the two drugs, which are both derived from tirzepatide, exceeded $2.3 billion. Zepbound has overtaken Novo Nordisk’s Wegovy, holding almost 57% of new prescriptions by the end of Q1.
This is just the beginning. On the Q1 earnings call, CEO Dave Ricks mentioned that Zepbound was available to 67% of the U.S. commercial market as of April 1, 2024. Medicare typically only covers obesity drugs with other approved indications, but Lilly plans to pursue regulatory approval for tirzepatide in obstructive sleep apnea this year, potentially unlocking the Medicare market.
Tirzepatide may also gain approval for additional indications. Lilly is set to file for U.S. approval for tirzepatide to treat heart failure with preserved ejection fraction (HFpEF) later this year and is investigating the drug in phase 2 trials for metabolic-associated steatohepatitis (MASH), also known as nonalcoholic steatohepatitis (NASH). Some analysts believe the NASH/MASH market alone could exceed $100 billion annually.
2. Future-Ready Weight-Loss Drugs in the Pipeline
While Mounjaro and Zepbound are already impressive, Eli Lilly’s pipeline may hold even better weight-loss drugs. The company is currently testing orforliprin (an oral therapy) and retatrutide in late-stage trials, and bimagrumab and mazdutide are in phase 2 studies. Additionally, DACRA QW II is in phase 1 testing.
Chief Scientific Officer Dan Skovronksy expressed optimism about these new drugs in the Q1 call, highlighting their potential to surpass tirzepatide in quality of weight loss, reduced side effects, and improved dosing frequency.
3. A Portfolio of Promising Candidates
In addition to its obesity drugs, Eli Lilly’s pipeline includes many other promising candidates. Donanemab and mirikuzumab, two of its leading contenders, are awaiting regulatory approval.
The U.S. Food and Drug Administration (FDA) has scheduled an advisory committee meeting to review donanemab, which aims to treat early-stage Alzheimer’s disease. Despite the waiting period, Lilly remains confident about the drug’s potential and is already preparing for a successful launch upon approval.
Meanwhile, Lilly has sought approval in the U.S. and the EU for mirikuzumab to treat Crohn’s disease and has resubmitted it for FDA approval for atopic dermatitis following a response letter related to a third-party manufacturer.
Valuation Concerns: Is It Overvalued?
The primary criticism some investors have with Eli Lilly is its valuation. With a forward price-to-earnings (P/E) ratio of 62.5, it might appear to be priced too high. However, forward P/E multiples only consider the next year, while Eli Lilly is set for significant growth well beyond that.
Though the stock isn’t cheap, its valuation is not a concern given the company’s tremendous growth prospects. With its robust pipeline, significant investments in research and development, and strong market positioning, Eli Lilly is positioned to maintain its growth trajectory and deliver substantial returns for investors in the long term.