Eli Lilly (LLY -0.27%) He was on an epic tour recently. With excitement over its Alzheimer’s and weight loss origins, shares of Lilly’s have taken a beating in the broader markets over the past three years. However, there is a downside associated with Lily’s meteoric rise. The company’s shares now trade at more than 52 times expected earnings, making it the most expensive big pharma stock right now.
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Could Lilly’s stock price go up, or is it time to take a profit? Let’s dig deeper to find out.
Lilly’s strengths, weaknesses, and outlook
Lilly is a well built castle. The company’s above-average research and development spending has created one of its deepest and most robust pipelines.
Lilly’s overseas development efforts have brought several new growth products to market recently, such as the diabetes drugs Mounjaro, Jardiance, and Trulicity, along with Taltz (a psoriasis drug) and Verzenio (a breast cancer drug). Also, the late-stage pipeline is full of great candidates such as librekizumab (atopic dermatitis), miricizumab (immunology), and dunanimab (Alzheimer’s disease). Finally, Lilly’s recent $1.9 billion acquisition of Versanis Bio could cement its position as a leader in the lucrative weight loss care market.
Like every big pharma, Lilly has to deal with the loss of product exclusivity caused by the expiration of key patents. Right now, the drugmaker is in general competition for its best-selling cancer drug, Alimta. Lilly is also feeling the sting of the lower prices of the diabetes drugs Humalog and Trulicity. Moreover, its main results were negatively impacted by lower demand for COVID-19 solutions in recent quarters.
Thus a battle unfolds between Lilly’s older products and the newer growth products. Fortunately, drug manufacturers’ arsenal of new products is expected to eventually shine from a top-line perspective despite patent and price headwinds.
On the outlook front though, Lilly is still a bit vague. The intense level of competition in the all-important weight loss market makes it nearly impossible to make any long-term predictions at the moment. Lilly’s recent acquisition in the space could give it a best-in-class drug. but Novo NordiskAnd AmgenAnd Pfizer You will probably counter in some way.
So, until the issue of competitive positioning is resolved, it’s arguably a bad idea to make any quantitative calls about Lilly’s estimated revenue growth over the decade. After all, weight loss is likely to be the primary driver of the company’s growth over the next decade and a half. Speaking of which, weight loss drugs could account for more than 60% of big pharma’s annual revenue by the middle of the next decade.
to rule
Is Lilly Stock Still Buying After Such A Big Increase? This is a tough call. As things stand now, Lilly could own a significant portion of the massive weight loss market by the end of the decade. If that’s true, Lilly shares could have a fair amount of upside left. However, if a competitor were to pass Lilly in weight loss, the company’s stock would likely forfeit a significant amount of its premium. So, all things considered, it might be best to look elsewhere for a more compelling growth opportunity.
George Budwell holds positions at Pfizer. The Motley Fool has and recommends positions at Pfizer. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.
