Eli Lilly and Company’s LLY stock has risen 21.1% in six months compared with an increase of 10.5% for the industry. The stock has also outperformed the sector as well as the S&P 500 as seen in the chart below.

LLY Stock Outperforms Industry, Sector & S&P 500

Image Source: Zacks Investment Research

Lilly has seen unparalleled success with its GLP-1 drugs, Mounjaro and Zepbound. In the past couple of years, it has received approvals for several new drugs like Kisunla, Omvoh and Jaypirca and witnessed pipeline and regulatory success. Its new drugs have been contributing significantly to its top-line growth in 2024. Lilly is also making rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s.

Let’s understand the company’s strengths and weaknesses to better analyze what is driving the stock price gain and how to play the stock.

Mounjaro & Zepbound: Key Top-Line Drivers for Lilly

Mounjaro and Zepbound include the same compound tirzepatide, a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA). The GLP-1 segment is a very important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity. Mounjaro was approved in May 2022 for type II diabetes. Zepbound was launched in November 2023 to treat obesity.

Despite a short time on the market, Mounjaro and Zepbound have become key top-line drivers for Lilly in 2024, with demand rising rapidly. Since 2020, Lilly has committed more than $18 billion to build, upgrade or acquire facilities in the United States and Europe, and the benefit of these investments is showing now as the supply of the drugs is increasing. Mounjaro and Zepbound generated sales of almost $6.7 billion in the first half of 2024, accounting for around 44% of the company’s total revenues.

Tirzepatide is also being developed for other indications like obstructive sleep apnea (OSA), heart failure with preserved ejection fraction (HFpEF), cardiovascular risks and metabolic dysfunction-associated steatohepatitis (MASH). Approval for these expanded indications and launch in additional geographies can further boost sales.

Last month, Lilly launched a discounted single-dose vial version of Zepbound, which is expected to broaden access for obesity patients, especially those without insurance.

Lilly’s tirzepatide medicines face strong competition from Novo Nordisk’s NVO semaglutide. Semaglutide is approved as Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes and as Wegovy injection for weight management. Wegovy sales have also remained strong. Though Novo Nordisk is also making efforts to improve the supply of its semaglutide drugs, it has not been as successful as Lilly yet.

LLY’s New Drugs & Pipeline Success

Other than Mounjaro and Zepbound, Lilly has gained approvals for some other new drugs in the past year. These included Omvoh for ulcerative colitis and BTK inhibitor Jaypirca for mantle cell lymphoma and chronic lymphocytic leukemia. Lilly expects its new drugs Mounjaro, Omvoh, Zepbound, Ebglyss and Jaypirca to drive its top line in the second half of 2024.

In July, Lilly won a long-awaited FDA approval for Kisunla (donanemab) for treating early symptomatic Alzheimer's disease. Lilly believes Kisunla can generate blockbuster sales. Kisunla is only the second drug on the market to treat Alzheimer's disease after Biogen BIIB and its Japan-based partner Eisai’s Leqembi. Interestingly, Kisunla’s label mentions that physicians may consider stopping the dosing of Kisunla based on the reduction of amyloid plaques, which can prove to be a competitive advantage.

Lilly is investing broadly in obesity and has 11 new molecules currently in clinical development, including two late-stage candidates, orforglipron, an oral GLP-1 small molecule and retatrutide, a GGG tri-agonist. Several phase III data readouts are expected in 2025. While competitors like Amgen (AMGN) and Viking Therapeutics are making rapid progress in their GLP-1-based diabetes/obesity candidates, we believe they will take time to catch up.

LLY Premium Valuation, Rising Estimates

The stock is trading at a premium to the industry, as seen in the chart below.

LLY Stock Valuation

Image Source: Zacks Investment Research

Earnings estimates for 2024 have risen from $13.72 to $16.49 per share over the past 60 days. For 2025, earnings estimates have risen from $19.42 to $23.97 per share over the same timeframe.

LLY Estimate Movement

Image Source: Zacks Investment Research

Invest in LLY's Stock

Lilly has consistently reported strong revenues and profits and dealt well with expiring patents and increasing competition. The stupendous success of Mounjaro and Zepbound has made it the largest drugmaker with a market cap of more than $840 billion.  Lilly’s stock has gone up by more than 730% in the past five years, mainly due to its solid pipeline potential, particularly its obesity drugs. The stock is also trading above its 200-day moving average since past several months and started trading above its 50-day moving average from early September.

Lilly’s revenue growth is being driven by higher demand for Mounjaro, Zepbound, Verzenio and others, which will make up for declining sales from Trulicity. Incremental contribution for new drugs, rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s and regular M&A activity will keep the stock afloat.

Lilly is a great stock to have in one’s portfolio currently based on its strong overall financial performance and robust drug pipeline. Consistently rising earnings estimates clearly highlight analysts’ optimistic outlook for further growth. Though LLY currently trades at a premium to the industry, investors should still consider adding this Zacks Rank #1 (Strong Buy) stock as the company is on a roll, achieving key clinical and regulatory victories and delivering exceptionally strong financial performance.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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