Eli Lilly has been an enormous winner with its GLP-1 medicine.
Powered by its well-liked GLP-1 weight reduction medicine, Eli Lilly‘s inventory (LLY 0.89%) has had a robust run this yr, up greater than 55%. Nevertheless, the corporate’s success goes again a lot additional, with the fill up greater than 1,300% over the previous decade.
Given its robust efficiency, traders could also be questioning if the inventory remains to be a purchase. Let’s take a more in-depth look to assist resolve.
The GLP-1 medicine
Whereas Eli Lilly has a portfolio of medicine that assist deal with a number of well being points, it is the corporate’s GLP-1 medicine which are its high sellers. Its first GLP-1 drug known as Byetta, developed at the side of (now Bristol Myers Squibb subsidiary) Amylin Prescribed drugs, was permitted again in 2005 to assist higher management blood sugar ranges in sufferers with sort 2 diabetes. The 2 companions would later cut up, with Amylin paying Eli Lilly for its exenatide portfolio, together with Byetta, in 2011.
Nevertheless, Eli Lilly continued to develop GLP-1 medicine, getting Trulicity, which is used to deal with sort 2 diabetes, permitted in 2014. By 2018, Trulicity would turn out to be Eli Lilly’s top-selling drug, with over $3 billion in gross sales. Whereas its gross sales are in decline as Eli Lilly’s newer GLP-1 medicine start to take market share, the drug was nonetheless Eli Lilly’s second-best-selling drug within the first half of 2024, with $2.7 billion in gross sales. Nevertheless, that was a decline of 29% versus the primary half of 2023.
The present rising stars of Eli Lilly’s drug lineup are Mounjaro and Zepbound, two GLP-1 medicine that use tirzepatide as their lively ingredient. Mounjaro was first permitted by the FDA in Might 2022 to assist enhance blood glucose ranges in adults with sort 2 diabetes. Nevertheless, the drug was rapidly being prescribed off-label for weight reduction. Via the primary half of 2024, it was Eli Lilly’s top-selling drug, bringing in a large $4.9 billion in income, up from $1.5 billion over the identical interval a yr in the past.
Eli Lilly, in the meantime, bought a second tirzepatide drug permitted late final yr. This time, it was Zepbound, which was particularly for weight reduction in overweight adults or obese adults who’ve a minimum of one weight-related situation akin to sort 2 diabetes, hypertension, or excessive ldl cholesterol. Nevertheless, it too was rapidly being prescribed off-label for basic weight-loss functions. The drug soared out of the gate to turn out to be Eli Lily’s fourth-best-selling drug within the first half of this yr.
Proper now, Eli Lilly is seeing unprecedented demand for its tirzepatide medicine, which it’s nonetheless working to fulfill. Over the previous few years, it has poured cash into new amenities, and it not too long ago introduced a brand new $4.5 billion funding to create a complicated manufacturing and drug improvement heart at its Indiana facility, which comes on the heels of a $5.3 billion enlargement introduced in Might.
On the identical time, the corporate can also be seeking to get the drug permitted for different cases, akin to obstructive sleep apnea, that may be coated by Medicare. This opens up one other progress driver for these medicine down the road. Nevertheless, weight problems will stay a spotlight, with it having 11 new molecules presently in scientific trials throughout a number of indications.
In the meantime, Eli Lilly is preventing each counterfeit and compound medicine which have come to market, given the recognition of its GLP-1 medicine, in addition to these of rival Novo Nordisk. The corporate has despatched cease-and-desist letters to lots of of firms which were making and promoting these compounded medicine, which had been authorized when the medicine have been on the FDA’s scarcity checklist, from which tirzepatide was not too long ago eliminated. There’ll probably be a significant battle, nonetheless, to cut back the usage of cheaper compounding medicine, and Novo Nordisk’s semaglutide lively ingredient remains to be on the checklist. At this level, although, any inroads into curbing this needs to be helpful to the corporate.
Is Eli Lilly a purchase?
Eli Lilly has a protracted historical past of creating medicine to deal with quite a lot of circumstances. For instance, its third-best-selling drug Verzenio is used to assist deal with breast most cancers, whereas its sixth-best-selling drug Taltz is used to deal with autoimmune ailments. In the meantime, it presently has a plethora of medicine in scientific trials for treating such circumstances as Alzheimer’s illness, a number of sclerosis, and Parkinson’s illness.
That stated, weight-loss medicine are definitely the corporate’s largest progress engine proper now. The demand for its GLP-1 medicine is presently why the inventory trades at a wholesome ahead price-to-earnings (P/E) of 38.6 instances subsequent yr’s analyst estimates. That is fairly excessive in comparison with some bigger conventional pharmaceutical rivals akin to Pfizer and Merck, which each commerce at below 11 instances.
Nevertheless, Eli Lily is a fast-growing firm, with a price/earnings-to-growth ratio (PEG ratio) of solely 0.5. PEGs below 1 are normally thought of undervalued, so on that foundation, the inventory is cheap.
Given the large alternative that Eli Lilly nonetheless has in entrance of it with its GLP-1 medicine, the inventory is a purchase at its present valuation.