Why Eli Lilly Stock’s Big Jump Last Week Could Be Just the Start of Another Huge Run

For a while, it looked like the streak was over Eli Lilly (LLY -0.82%). Shares of the big drugmaker have soared nearly 160% between early 2023 and mid-July this year. However, Lilly shares fell nearly 19% after that — through last week.

On August 8, Lilly reported excellent second-quarter results, and the pharmaceutical stock quickly rose more than 15%. Here’s why Lilly’s big jump last week could be just the start of another huge run.

Mounjaro and Zepbound are gaining in popularity

Recent optimism around the stock is largely due to robust sales for three products: Mounjaro, Zepbound and Verzenio. While sales of blockbuster breast cancer drug Verzenio rose 44% in the reported quarter, investors were even more excited by results for Mounjaro and Zepbound, used to treat diabetes and promote weight loss.

Mounjaro’s sales tripled year over year in Q2 to nearly $3.1 billion. Sales for Zepbound, which won US Food and Drug Administration (FDA) approval in November 2023, topped $1.2 billion in the second quarter.

Under the hood, Mounjaro and Zepbound are the same drug — tirzepatide. Lilly markets Mounjaro in the US as a treatment for type 2 diabetes (T2D) and outside the US for both T2D and obesity. In the US, the company uses the Zepbound brand for the indication of obesity.

Lilly raised its full-year 2024 revenue guidance by $3 billion to between $45.4 billion and $46.6 billion. Unsurprisingly, the company attributed this improved outlook primarily to “the strong performance of Mounjaro and Zepbound.”

But Mounjaro and Zepbound are just warming up. Analysts polled by FactSet project that the two products will generate combined sales of more than $50 billion by 2029.

More on the way

The company has several potential rising stars in its lineup and pipeline.

The FDA last month approved Kisunla as a treatment for early-stage Alzheimer’s disease. Analysts expect the drug to generate peak annual sales in the $5 billion stage.

Lilly also has high expectations for tirzepatide in treating indications other than T2D and obesity. It recently applied for regulatory approvals in the US and the EU for the drug to treat obstructive sleep apnea in obese adults. The company reported positive results earlier this month for the drug in treating patients with heart failure with preserved ejection fraction and obesity. Lilly is also evaluating tirzepatide in a Phase 2 clinical trial targeting metabolic-associated steatohepatitis (MASH).

And Mounjaro and Zepbound may not be Lilly’s only T2D and obesity drugs going forward. The drugmaker has two promising late-stage candidates targeting both indications: orforglipron and retatrutide.

Lilly’s main disadvantage

Sales for Mounjaro and Zepbound will almost certainly continue to grow dramatically. Lilly could have key catalysts from FDA approvals and late-stage clinical results from its programs. His stock could very well start another huge streak.

There are, however, a few things that could stand in the way. Competitors could gain market share at Lilly’s expense, and the company’s experimental drugs may fail in clinical trials.

However, perhaps the main downside for Lilly is its valuation. The company is now the world’s largest drugmaker, with its market capitalization exceeding $840 billion and its forward price-to-earnings ratio around 65. Massive growth expectations are set in Lilly stock. Any hiccups along the way could prevent the stock from growing. But the odds that Lilly is at the start of another major uptrend still look pretty good.