Johnson & Johnson reigned as the largest healthcare company in the world for years. UnitedHealth Group also took a turn at the top. However, the title now belongs to Eli Lilly (LLY -0.40%) -- and it isn't even close.
Lilly continues to widen its lead over all other healthcare companies. It just reached yet another all-time high. Is this soaring pharma stock still a buy?
Good news galore
You won't have to look hard to find good news for Lilly that explains its remarkable stock performance. We can start with Mounjaro. The drug, marketed in the U.S. for treating type 2 diabetes (T2D) and outside the U.S. for T2D and weight loss, is now Lilly's top-selling product. Mounjaro's sales more than tripled year over year in the first quarter of 2024 to over $1.8 billion.
Mounjaro's sibling product, Zepbound, is sold in the U.S. in the weight-loss indication. It won U.S. approval in November 2023. The drug raked in over $517 million in Q1 -- its first full quarter on the market.
Lilly also has other big winners in its lineup. Sales for cancer drug Verzenio jumped 40% year over year in Q1. Diabetes drug Jardiance, fast-acting insulin product Humalog, and autoimmune disease drug Taltz all delivered double-digit percentage sales growth in Q1 as well.
The company awaits regulatory approvals for two potential blockbuster drugs. Analyst think that mirikizumab could achieve peak annual sales of up to $2 billion in treating Crohn's disease. Lilly has high hopes for donanemab in treating Alzheimer's disease. Analysts project peak risk-adjusted annual sales of the drug could easily top $5 billion.
Lilly's pipeline features 20 other late-stage programs. They include promising new diabetes and obesity drugs orforglipron and retatrutide. The drugmaker is also evaluating tirzepatide (the drug marketed under the brand names Mounjaro and Zepbound) as a potential treatment for heart failure with preserved ejection fraction (HFpEF) and obstructive sleep apnea.
Playing devil's advocate
With all these growth drivers, it might seem like a slam-dunk decision to buy Eli Lilly stock. However, let's play devil's advocate for a moment.
First, Lilly already has significant growth expectations baked into the share price. The stock trades at a forward earnings multiple of over 62. Its price-to-earnings-to-growth (PEG) ratio of 2.5, which reflects five years of growth projections, is also at a premium level.
It's also possible that Lilly won't be able to deliver as much growth as anticipated. For example, Mounjaro and Zepbound compete against Novo Nordisk's Ozempic and Wegovy and could face stiffer competition from products that might be on the way.
Analysts' peak sales projections for donanemab and mirikizumab could prove overly optimistic. Some of Lilly's pipeline programs could run into problems in clinical testing and never make it to market.
Is Eli Lilly stock still a buy?
So is Lilly stock still a buy after hitting another all-time high? I think it is.
Ordinarily, the nosebleed valuation metrics Lilly sports would be concerning. However, I think the company's growth prospects over the next decade and beyond are exceptional. Mounjaro, Zepbound, and their successor products are likely to remain huge winners in the diabetes and obesity markets. I'm optimistic about the prospects for tirzepatide in other indications as well.
Sure, Lilly could have a few clinical trial setbacks along the way. But with such a large and diverse pipeline, I like the company's overall chances of success.
I fully expect Lilly will extend its reign as the world's biggest healthcare company for years to come. And I predict the stock will continue to be a winner for long-term investors.
