Developing brand-new drugs is a long and expensive process that doesn't always deliver a positive return on investment. Occasionally, some pharmaceutical companies hit the jackpot and launch medicines worth all that trouble. That's what Eli Lilly (LLY 1.98%) has on its hands with tirzepatide, marketed as Mounjaro in the diabetes market and as Zepbound to help with weight loss. Analysts predict that tirzepatide's peak sales could reach $25 billion, but to get there, Eli Lilly will have to earn more indications for its new crown jewel.
One exciting market the drugmaker is targeting is the non-alcoholic steatohepatitis (NASH) field. Read on to find out what makes this area promising for Eli Lilly's tirzepatide and what it means for the stock.
There is a large unmet need in NASH
NASH is a liver disease that, as its name suggests, is not due to heavy alcohol consumption. It is caused by a buildup of fat in the liver that leads to fibrosis (scarring). Diabetes and obesity are among the leading risk factors for NASH, which, in severe cases, can be deadly. Here's the thing: The prevalence of diabetes and obesity has increased substantially in recent decades. However, the market for therapies that treat NASH hasn't kept up.
In fact, the U.S. Food and Drug Administration approved the first medicine for NASH just this year. In other words, there is still a significant unmet need here.
NYSE: LLY
Key Data Points
Eli Lilly, a longtime leader in developing diabetes medicines, hopes tirzepatide will eventually earn approval to treat NASH. The medicine did deliver solid results in phase 2 studies. One such trial looked at 157 participants who were either given a placebo or tirzepatide (in various doses) over 52 weeks. The results were that the medicine achieved its primary endpoint of NASH resolution without worsening of fibrosis (which even improved with the treatment).
It remains to see whether tirzepatide will confirm these results in phase 3 studies, but for now, things are progressing smoothly with this project.
There are much better reasons to buy
Analysts have high hopes for the NASH market. Some think it will be worth $108.4 billion by 2030, meaning it will grow exponentially between now and the end of the decade. That's good news for Eli Lilly, but here's the not-so-good news for the company: Other drugmakers are also looking to dominate this market. It could even become excessively crowded soon enough. The list of companies on this trail is long.
Among pharmaceutical giants, Novo Nordisk and Pfizer are both in the race. Many smaller biotechs are on this trail, too, including the now-famous Viking Therapeutics and, of course, Madrigal Pharmaceuticals, which boasts the only FDA-approved NASH therapy. Competition is par for the course for drugmakers. Eli Lilly's tirzepatide could still be a leader in this market, even with many of its peers also joining in. But here's the most crucial point: Although the NASH field looks highly promising, it won't make or break Eli Lilly's prospects.
Tirzepatide is being developed to treat other conditions, including obstructive sleep apnea. The medicine recently delivered positive phase 3 clinical trial data from two studies in patients with OSA and obesity. Further, within its existing indications, tirzepatide is already a blockbuster. Mounjaro generated a little over $5 billion last year -- it was launched in mid-2022. Zepbound, which earned approval in November, racked up $517.4 million in sales in the first quarter.
Unless a catastrophic accident happens, it will exceed $1 billion for the year. Zepbound's rapid uptake (and Mounjaro's continuing momentum) led Eli Lilly's management to increase its guidance for the year. When adding up the amount of revenue Zepbound and Mounjaro are generating together, it seems they are well on their way to meeting the lofty expectations set by analysts. An approval in NASH would be a nice addition, but it almost feels like icing on the cake for the therapy.
Eli Lilly has many other medicines helping drive top-line growth and several exciting pipeline candidates. The company's revenue and earnings should grow at a rate much higher than the average pharmaceutical giant for the foreseeable future. Analysts agree: They think the drugmaker's earnings per share will increase, on average, by almost 63% annually. That's phenomenal for a company of this size in almost any industry. And that's before we add that Eli Lilly is a solid dividend stock. There are far too many good reasons to invest in this corporation.
