Billion dollar news for Eli Lilly stock investors

Eli Lilly (NYSE: LLY) the stock has climbed double digits over the past year thanks to its leadership position in one of the fastest growing pharmaceutical markets around: weight loss drugs. Lilly sells tirzepatide, marketed as Mounjaro for type 2 diabetes and as Zepbound for weight management. Doctors prescribed both for the weight loss indication, and the demand was so great that it exceeded the supply – and the same was the case with the rival. Novo Nordiskwhich sells the similar compound semaglutide, known commercially as Ozempic and Wegovy.

And this lack of sufficient supply was actually a significant problem for both companies. The obvious reason is: a company cannot fully benefit from the revenue opportunity if it is not able to produce enough product. Even worse, however, in pharmaceuticals, when a company’s drug ends up on the US Food and Drug Administration’s (FDA) shortage list, compounding pharmacies are authorized to make copies of the drug and sell it — and often these copies are cheaper. . This is what is happening with Lilly and Novo Nordisk drugs.

In recent days, however, Lilly and the company’s shareholders have received what could be a billion-dollar news — and it could fuel gains in this already high-momentum stock. Let’s find out more.

Compounds that produce slimming drugs

As mentioned, compounding pharmacies have made a lot of money in recent months by supplying copies of Lilly’s weight loss drugs and watching their revenue grow. The FDA put Mounjaro on its shortage list about two years ago, then added Zepbound last April — Zepbound won FDA approval about six months before it landed on the list.

Just a few days ago, however, the FDA removed tirzepatide from the shortage list, closing the door on children from compounding pharmacies. Within 60 days, all compounding pharmacies must stop production. Meanwhile, Novo Nordisk’s semaglutide remains on the shortage list, meaning pharmacies can continue to make their versions.

That could mean billions of dollars in revenue for Lilly over time, as the company is now poised to serve customers who have turned to compounding pharmacies — and Novo Nordisk won’t take market share because the company’s drugs are still missing. list.

But, you might argue, patients turning to compounds might not be able to pay for Lilly’s higher-priced drug. The company has this, thanks to another recent move. Lilly, through its single-payer channel, has introduced single-dose vials of Zepbound that are half the price of all other drugs in the same class — incretins, or drugs that help regulate blood sugar levels. The ampoules are easier and cheaper to manufacture than the original version of Zepbound, which comes in a single-dose pen format.

The story continues

Lilly’s investment in manufacturing

The single-dose vials, as well as Lilly’s heavy investment in manufacturing over the past few years, have put the company on track to meet the demand for these highly sought-after drugs. Lilly has invested more than $18 billion since 2020 in its manufacturing capacity, a wise move given the growth forecasts in this particular market. The market for weight loss drugs could grow by 16 to reach $100 billion by the end of the decade, according to Goldman Sachs Research.

Now, getting Lilly out of this quagmire of drug shortages ahead of rival Novo Nordisk could give doctors and patients the upper hand — further increasing its revenue opportunity.

It’s important to note that even when Lilly couldn’t keep up with demand, it still generated successful revenue from Mounjaro and Zepbound. Mounjaro brought in $3 billion in revenue in its most recent quarter, while Zepound delivered $1.2 billion, for example. So now with the ability to serve more patients, more growth could be just around the corner and potentially billions of dollars over time.

Is Lilly a buy?

What does this mean for investors? It’s true that Lilly’s stock has advanced quite a bit — 63% over the past year — and trades for 54 times forward earnings estimates. That seems pretty expensive for a pharmaceutical stock. But given that Lilly today behaves more like a growth stock — and that could continue in light of the weight-loss drug market’s growth forecasts — current levels are reasonable. Especially for long-term investors, who will be well-positioned to benefit from the pharmaceutical giant’s years of growth going forward.

All of which means that now, after this billion-dollar news, is a great time to be a Lilly shareholder — or to get in on this big pharma growth story.

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Adria Cimino has no position in any of the mentioned actions. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

The Billion Dollar Eli Lilly Stock Investors news was originally published by The Motley Fool