Everyone Is Talking About Eli Lilly. Is It a Good Long-Term Option?
Eli Lilly (NYSE: LLY) has grabbed the attention of investors and the general public in recent times. That's because two of its drugs are taking the billion-dollar weight loss market by storm. Regulators first approved tirzepatide under the commercial name Mounjaro for type 2 diabetes -- but doctors also have been prescribing it off-label for weight loss. Then, late last year, regulators gave the nod to the molecule as Zepbound specifically for chronic weight management.
Mounjaro and Lilly's portfolio of drugs across treatment areas helped the company report a double-digit increase in sales in the most recent quarter. And investors have cheered Lilly's progress, lifting the shares more than 50% last year. That made Lilly a winning bet for short-term investors -- but is this pharma giant a good long-term option? Let's find out.
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The billion-dollar weight loss market
First, a bit about Lilly's opportunity in the weight loss market -- one that Goldman Sachs Research predicts may reach $100 billion by 2030. As mentioned, Lilly already has been serving the weight loss market with Mounjaro and now has won approval for the same molecule under a different name -- Zepbound -- commercialized specifically for weight management. Mounjaro, in the first nine months of last year, brought in more than $2.9 billion from sales to diabetes and weight loss patients.
Mounjaro and Zepbound aren't alone in the market though. They compete with Novo Nordisk's Wegovy and Ozempic, also prescribed for weight loss. But this competition doesn't look daunting for Lilly considering the demand in today's market. Last year, doctors and patients faced shortages of these drugs, and both companies have had to take steps to ramp up production. So, there's reason to believe both Lilly and Novo Nordisk can score wins in the weight loss market and bring in billions of dollars from their drugs annually.
Lilly may even have a bit of an advantage. Lilly's molecule, tirzepatide, was up to 3 times more effective than Novo Nordisk's molecule, semaglutide, in Truveta Research's analysis of real-world data. The study showed those taking tirzepatide were 3 times more likely to reach 15% weight loss than those taking semaglutide.
And, considering Goldman Sachs' prediction for the weight loss market to increase by more than 16 times over the coming six years, Mounjaro and Zepbound may just be in the early days of their growth story.
Products driving sales growth
All of this sounds great, but it's important to remember that Lilly doesn't depend on the weight loss market for growth because it isn't just a one-product company. In fact, about a dozen products drove sales growth in the most recent quarter -- Lilly considers three of these "new products" and the rest "growth products." Most of these drugs, treating a variety illnesses from lymphoma to ulcerative colitis, should keep sales climbing in the years to come.
On top of this, the company has an impressive pipeline, with more than 20 programs in phase 3 studies -- and many others in earlier-stage trials. Even if only a handful make it to the finish line, this big pharma company could deliver strong growth well into the future.
Lilly also has demonstrated its earnings potential, growing both revenue and net income in the double digits over the past decade.
Finally, Lilly shares its successes with shareholders by offering a dividend, and the company recently increased the quarterly payment by 15% to $1.30 a share. So, if you get in on Lilly by Feb. 15, you can collect on the dividend in early March.
Is Lilly a buy?
Now, let's get back to our question: Is Lilly a good long-term option? It's true the stock has taken off in recent times thanks to the excitement over the company's weight loss treatments. But these drugs could represent lasting revenue drivers due to the demand in the market today and expected demand down the road. In addition to this, Lilly sells a wide variety of other drugs, and many of them are new or growing -- so could lift the company's revenue in the coming years.
Of course, like any pharma company, Lilly faces the challenges of patent expirations of certain drugs and the possibility of failure in the pipeline of potential products. But this big pharma player's solid portfolio of commercialized drugs means it can withstand these possible headwinds and continue to grow over time.
So, yes, Lilly was a winning short-term bet -- but investors likely have even more to gain by investing in this company over the long haul.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
