Shares of Eli Lilly (NYSE: LLY) notched a 3.5% gain on Thursday, Aug. 1, after the company reported positive clinical trial results for its increasingly successful weight management treatment. It looks like certain patients treated with tirzepatide were significantly less likely to suffer cardiovascular death and other heart failure outcomes compared to patients who were randomized to receive a placebo.

Tirzepatide is already marketed as Zepbound for weight management and Mounjaro for diabetes. Sales have been rocketing higher but so has Eli Lilly's stock price. To find out whether Eli Lilly stock is a good investment now, let's start by looking at what its new lead drug accomplished for heart failure patients.

A big deal, but probably not what you think

If you only glanced at the headlines concerning Eli Lilly's latest clinical trial success, you might think tirzepatide has been proven to prevent heart attacks and strokes across the board, but that isn't the case. The phase 3 Summit trial evaluated the drug in adults with obesity and a complex condition called heart failure with preserved ejection fraction or HFpEF. This is a condition where the heart beats normally but still can't pump enough blood because it isn't filling up before it contracts.

An endless array of conditions can prevent hearts from filling properly. Among roughly 3 million Americans with HFpEF at the moment, age, obesity, and diabetes are some of the most commonly noted risk factors.

Eli Lilly hasn't figured out how to reverse the aging process, but tirzepatide is a leading treatment for both type 2 diabetes and weight management. The Summit trial enrolled 731 patients with both HFpEF and obesity, many who also have diabetes, and randomized them to receive tirzepatide or a placebo.

After following those patients for two years, investigators measured a 38% risk reduction regarding heart failure outcomes such as hospitalization and cardiovascular death for patients who received tirzepatide.

In addition to a much lower risk of heart failure outcomes, patients given tirzepatide also reduced their weight by 15.7% on average compared to a 2.2% average weight reduction for patients given a placebo.

What's next for Eli Lilly and tirzepatide

Later this year, Lilly will submit Summit trial results to the Food and Drug Administration (FDA). The side effects measured in the Summit trial were on par with those seen in previous studies that led to tirzepatide's approval to treat diabetes and obesity.

A majority of patients with HFpEF do not survive five years after their initial diagnosis. Given this dismal prognosis, approval to treat patients with HFpEF and obesity seems highly likely in 2025.

Even without FDA approval to treat HFpEF with obesity, sales of tirzepatide are expected to soar from an annualized $9.3 billion in the first quarter of 2024 to somewhere between $25 billion annually and $50 billion annually at its peak.

Of course, Eli Lilly is not a one-drug company. Management expects total sales to climb from $34.1 billion in 2023 to between $42.4 billion and $43.6 billion this year. Tirzepatide is a big growth driver but isn't the only one in the company's product lineup. For example, Verzenio is a breast cancer treatment with first-quarter sales that soared 40% year over year to an annualized $4.2 billion.

A buy now?

Shares of Eli Lilly have fallen about 16% from a peak they set in July. Despite the recent drop, it's still a richly valued stock trading for around 58 times the midpoint of management's adjusted earnings expectation for 2024. If investors begin to worry that tirzepatide sales won't exceed $25 billion annually for some unforeseen reason, the stock could tank.

Eli Lilly recently said that tirzepatide manufacturing in the U.S. will be sufficient to meet demand in a matter of days. This means the FDA will quit allowing compounding pharmacies to sell their own versions of the treatment. A similar announcement regarding tirzepatide's biggest competitor, semaglutide from Novo Nordisk, is likely around the corner.

By the end of 2024, Americans will most likely lose access to semaglutide from Hims & Hers Health and compounding pharmacies, which bodes well for tirzepatide sales that are already breaking pharmaceutical industry records.

Risk-averse investors want to avoid this and any other pharma stock trading above 50 times earnings expectations. If you can tolerate the risk, though, adding some shares of Eli Lilly to a diversified portfolio and holding it for at least five years seems like a smart move.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Eli Lilly's Obesity Drug Shows a Heart Benefit. Is It Time to Buy? was originally published by The Motley Fool