To paraphrase a Shakespeare quote, bad news and misfortune tend to come in groups. But that may also apply to good news. Just ask Eli Lilly (NYSE: LLY), a pharmaceutical company that has been flying on all cylinders. The drugmaker continues to impress investors with exceptional financial results, impressive regulatory wins, and exciting clinical progress.
Much of the company's recent success has to do with tirzepatide, a medicine for diabetes (marketed as Mounjaro) and for obesity (marketed as Zepbound) that has been on the market only since mid-2022 but is already generating more than $4 billion in sales per quarter. No, that's not a typo.
Lilly recently announced positive results from a pivotal clinical trial of Mounjaro that could lead to even stronger sales. Here's the rundown on these new developments, and on why Eli Lilly's shares are still worth buying.
LLY Total Return Level data by YCharts.
Mounjaro helps prevent the disease it treats
According to data from the U.S. Centers for Disease Control and Prevention (CDC), 38.4 million Americans had diabetes as of 2021. Mounjaro's complex mechanism of action helps patients with type 2 diabetes -- 90% to 95% of the diabetic population -- reduce blood sugar levels and increase insulin production.
That's all well and good, but once people have diabetes, they can't get rid of it. What if Mounjaro could decrease the risk of developing the disease in the first place? According to Eli Lilly, that's precisely what it does.
The company conducted a study that lasted 176 weeks (a little over three years), and another 17 weeks of observation after the treatment ended. This clinical trial looked at 1,032 individuals who had prediabetes (higher-than-average blood sugar levels) and who were overweight or obese. Mounjaro decreased the risk of developing type 2 diabetes by 94% compared to a placebo.
There's still plenty of growth left
Eli Lilly's shares climbed by 3% on the news, a meaningful jump for a stock closing in on a trillion-dollar valuation. It's not hard to understand why the market was excited about these developments, as 1 American in 3 has diabetes. Though not all of them meet the second criterion in this pivotal study, many do.
Between those with type 2 diabetes, those with prediabetes, and overweight and obese patients who may or may not suffer from either condition, Mounjaro and Zepbound might easily target around 100 million patients in the U.S. alone, through indications it has already won, and those it is likely to win. That list also includes patients with sleep apnea.
Most medicines never generate $1 billion in sales per year. In light of all this, analyst projections regarding Mounjaro's peak sales don't look that out of touch with reality: Some predicted it could generate as much as $25 billion in annual revenue.
Still, detractors might point out that Eli Lilly's shares have skyrocketed by more than 800% in the past five years. Lilly's forward price-to-earnings (P/E) ratio is a dizzying 59.
LLY PE Ratio (Forward) data by YCharts.
The average for the healthcare sector is a much more modest 19. Can Eli Lilly possibly justify this valuation?
Well, its portfolio also now includes Kisunla, a medicine for Alzheimer's disease that recently earned approval. Some of the company's older products are also performing well, including Verzenio, a cancer medicine. Other newer products have been overshadowed by Mounjaro, but could also have blockbuster potential; these include cancer drug Jaypirca and ulcerative colitis treatment Omvoh, both of which earned the green light last year.
Analysts think Eli Lilly's earnings per share will grow at an average of 76% through the next five years, and they've raised their projections several times over the past year -- just as Lilly boosted its revenue guidance by $3 billion during its second-quarter earnings announcement.
Mounjaro and its cast of supporters are surprising everyone, even (so it seems) the company's management. And Lilly's recent success speaks volumes about its ability to develop breakthrough medicines.
So, despite the company's strong performance in recent years and despite a rich-looking forward P/E, it's still worth investing in Eli Lilly.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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