Eli Lilly (NYSE: LLY) has become a point of great interest for investors and the wider public alike, armed with two drugs that are making powerful waves in the billion-dollar weight loss market. Initial approval for tirzepatide, marketed as Mounjaro for type 2 diabetes, has paved the way for physicians to also prescribe it off-label for weight loss. Furthermore, the recent regulatory clearance for the molecule as Zepbound, specifically targeting chronic weight management, has bolstered the company’s stronghold in this market segment.
The double-digit surge in sales in the most recent quarter, propelled by Mounjaro and Lilly’s diversified portfolio of drugs, has sparked enthusiasm among investors, driving the company’s shares up by over 50% in the past year. While this meteoric rise may have proven rewarding for short-term investors, the question remains – is Eli Lilly a viable long-term investment option?
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Thriving in the Billion-Dollar Weight Loss Market
Lilly’s foothold in the weight loss market represents a substantial opportunity, estimated to reach $100 billion by 2030, according to projections by Goldman Sachs Research. The sales performance of Mounjaro, garnering over $2.9 billion in the first nine months of the past year from diabetes and weight loss patients, underscores the immense potential of this market. Lilly’s triumphs, however, unfold amidst fierce competition from Novo Nordisk’s Wegovy and Ozempic, also leveraged for weight loss. Despite this, the prevailing market demand has led to shortages of these drugs, leaving ample room for both companies to reap significant profits from their respective offerings. Furthermore, studies comparing Lilly’s tirzepatide with Novo Nordisk’s semaglutide indicate that the former may exert considerable superiority, boding well for Lilly’s continued success in this burgeoning market.
Given the anticipated monumental growth of the weight loss market in the near future, the narratives of Mounjaro and Zepbound may just be at the inception of their narrative.
Driving Sales Growth through Diverse Product Offerings
While Lilly’s foray into the weight loss market is undoubtedly promising, it is crucial to recognize that the company’s growth is not singularly hinged on this venture, as it boasts a diverse portfolio with a dozen products propelling its sales expansion. Notably, three of these products are classified as “new,” while the remainder are categorized as “growth products,” collectively catering to a spectrum of conditions ranging from lymphoma to ulcerative colitis. This diversification is poised to sustain Lilly’s sales trajectory in the years to come.
Lilly’s robust pipeline, featuring over 20 programs in phase 3 studies along with numerous others in earlier-stage trials, offers additional promise. Even with a conservative estimate of successful drug launches, this prominent pharmaceutical enterprise is positioned to deliver substantial growth in the long term.
Lilly’s consistent revenue and net income growth in the double digits over the past decade underscore its robust earnings potential. Furthermore, the company demonstrates its commitment to shareholders by augmenting its quarterly dividend payment by 15% to $1.30 per share, making an investment in Lilly an enticing prospect.
Investment Viability of Lilly
Amidst speculation on Lilly’s long-term investment feasibility, it becomes clear that the recent surge in the stock’s value is not solely attributable to the excitement surrounding its weight loss treatments. Rather, these breakthrough drugs hold the promise of providing enduring revenue streams, given the prevailing market demand and future growth expectations. Moreover, Lilly’s expansive product portfolio, fortified by new and burgeoning drugs, further augurs well for its sustained revenue upswing in the years ahead.
While acknowledging the challenges inherent in the pharmaceutical industry, such as patent expirations and potential setbacks in the product development pipeline, Lilly’s robust collection of commercialized drugs signifies its aptitude for withstanding such headwinds and continuing its growth trajectory.
Therefore, although Lilly has already proven to be a lucrative short-term prospect, investors stand to gain exponentially more by embracing this company for the long haul, as its multifaceted approach would likely yield substantial returns.
*Stock Advisor returns as of December 18, 2023