Thanks to the emergence of blockbuster drugs called glucagon-like peptide-1 (GLP-1) agonists, the pharmaceutical industry is currently experiencing something of a renaissance. Perhaps the best-known GLP-1 drugs are the diabetes drug Ozempic and the obesity drug Wegovy. Danish pharmaceutical giant Novo Nordisk is the creator of both.
However, Eli Lilly (NYSE:LLY) is making a name for itself in the diabetes and chronic weight management markets. The company’s flagship diabetes drug, Mounjaro, has been a tremendous success since receiving approval from the Food and Drug Administration (FDA) in mid-2022.
Although not all investors may be aware of it, Lilly also has another GLP-1 drug called Zepbound. Although it has only been on the market since November, early results are encouraging.
Let’s examine 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.
GLP-1 treatments could be revolutionary
According to a study by JP MorganBy 2030, 9% of the US population could be using a GLP-1 drug. One of the reasons for the high number of users is that GLP-1 agonists are currently being researched in areas outside of diabetes and obesity.
In fact, the FDA determined back in March that Wegovy’s main ingredient – semaglutide – can be used to treat heart disease. As a result, Novo Nordisk received expanded approval of its anti-obesity drug to treat patients at risk of stroke, high blood pressure and other cardiovascular complications.
Additionally, just a few weeks ago, Lilly released encouraging results from a study using Mounjaro to treat people with obstructive sleep apnea (OSA).
In addition to heart disease and sleep apnea, JP Morgan’s research suggests that GLP-1 drugs also have use in arthritis, kidney disease and even Alzheimer’s disease.
Eli Lilly’s one-two punch is powerful
Currently, Lilly’s Mounjaro and Zepbound are used to treat diabetes and obesity patients.
Last year was the first full year that Mounjaro was commercially available. Diabetes treatment sales exceeded $5 billion, making it Lilly’s second-highest source of revenue. Additionally, following Zepbound’s FDA approval in early November, the drug generated $178 million in sales in the last two months of 2023 alone.
This dynamic has extended into 2024. In the first quarter, Mounjaro reported revenue of $1.8 billion, now the company’s largest revenue segment. Zepbound’s performance was equally impressive: the obesity drug generated sales of over $500 million.
Zepbound currently has over $2 billion in revenue. This would be another blockbuster for Lilly in its first year on the market.
Is Eli Lilly stock a good buy right now?
While this all looks encouraging, valuation is one area to be cautious about when considering investing in Eli Lilly. Shares are up 95% in the past year, significantly outperforming S&P 500. And with a forward price-to-earnings (P/E) ratio of almost 60, the stock isn’t exactly dirt cheap. In comparison, the S&P 500’s forward P/E ratio is around 20.
Despite the stock’s high valuation, I still think Eli Lilly is a compelling buy. A prudent strategy for investing in Lilly stock is to build a position through dollar-cost averaging. This method helps reduce risk because you are buying stocks at different prices over a long-term time horizon.
Currently, almost 60% of the GLP-1 market belongs to Novo Nordisk. Given the growth in Mounjaro and Zepbound, as well as the numerous opportunities for GLP-1 medicines outside of diabetes and obesity, I am optimistic that Lilly will gain momentum both within and outside of core applications.
For these reasons, and given the long-term tailwinds driving GLP-1 treatments, I see the stock as a great opportunity. Additionally, Eli Lilly’s early success in this pharmaceutical space proves that the company is an emerging leader, and I think its long-term position looks strong.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco holds positions at Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
Move over, Mounjaro. “Eli Lilly Has Another Blockbuster in the Making” was originally published by The Motley Fool