The pharmaceutical industry is currently experiencing something of a renaissance thanks to the rise of blockbuster medications called glucagon-like peptide-1 (GLP-1) agonists. Perhaps the most well-known GLP-1 drugs are diabetes medication Ozempic and obesity care treatment Wegovy. Danish pharmaceutical giant Novo Nordisk is the maker of both.
However, Eli Lilly (LLY +3.07%) is making a name for itself in the diabetes and chronic weight management markets. The company's flagship diabetes drug, Mounjaro, has been an enormous success since gaining approval from the Food and Drug Administration (FDA) in mid-2022.
While investors may not all realize it, Lilly also has another GLP-1 medication called Zepbound. Although it's only been on the market since November, initial results are encouraging.
Let's explore how the rise in GLP-1 agonists is fueling a new phase of growth for Eli Lilly, and assess why now could be a lucrative opportunity to scoop up some shares.
NYSE: LLY
Key Data Points
GLP-1 treatments could be revolutionary
According to research conducted by J.P. Morgan, 9% of the U.S. population could be using a GLP-1 medication by 2030. One of the reasons for such a high number of users is that GLP-1 agonists are currently being explored in areas outside of diabetes and obesity.
In fact, back in March the FDA found that the main compound in Wegovy -- semaglutide -- has applications for treating heart disease. As a result, Novo Nordisk was granted an expanded approval of its obesity care drug to help treat patients at risk of stroke, hypertension, and other cardiovascular complications.
Furthermore, just a couple of weeks ago, Lilly released encouraging results from a study in which Mounjaro was used to treat people suffering from obstructive sleep apnea (OSA).
In addition to heart disease and sleep apnea, J.P. Morgan's research suggests that GLP-1 medications have use cases in arthritis, kidney disease, and even Alzheimer's disease.
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Eli Lilly's one-two punch is strong
For now, Lilly's Mounjaro and Zepbound are being used to treat diabetes and obesity patients.
Last year was the first full year that Mounjaro was commercially available. Sales of the diabetes treatment topped $5 billion -- providing Lilly's second-highest source of revenue. Moreover, following Zepbound's FDA approval in early November, the medication generated $178 million of revenue in just the last two months of 2023.
This momentum has poured over into 2024. During the first quarter, Mounjaro reported revenue of $1.8 billion and is now the company's largest sales segment. Zepbound's performance was equally impressive, with the obesity medication generating more than $500 million in revenue.
Zepbound is now on a revenue run rate in excess of $2 billion. This would make it another blockbuster for Lilly in just its first year on the market.
Is Eli Lilly stock a good buy right now?
While all of this looks encouraging, one area to be cautious about when considering an investment in Eli Lilly is valuation. Shares have soared 95% over the past year, handily topping the S&P 500. And with a forward price-to-earnings (P/E) ratio of nearly 60, the stock isn't exactly dirt cheap. By comparison, the forward P/E of the S&P 500 is about 20.
Despite the stock's rich valuation, I still see Eli Lilly as a compelling buy. A prudent strategy to invest in Lilly stock is to build a position through dollar-cost averaging. This method helps mitigate risk, as you'll be buying shares at various price points over a long-term time horizon.
Right now, nearly 60% of the GLP-1 market belongs to Novo Nordisk. Considering the growth in Mounjaro and Zepbound, combined with the abundant opportunities for GLP-1 medications outside of treating diabetes and obesity, I'm optimistic that Lilly will gain momentum both within and outside core applications.
For these reasons, and given the secular tailwinds fueling GLP-1 treatments, I see the stock as a strong opportunity. Moreover, Eli Lilly's early success in this pharmaceutical area is proving that it's an emerging leader, and I think its long-term position looks strong.
