Eli Lilly’s top GLP-1 drugs now account for nearly 40% of its revenue, and that’s likely to grow in the coming quarters

For a top drug maker like Eli Lilly (LLY -1.01%)developing new drugs is key to ensuring that his business continues to grow. Patents don’t last forever, so continuing to innovate is the only sure way to succeed and remain a top company in the healthcare industry.

In the past two years, the company has won approvals for several new products, including Mounjaro for diabetes, Zepbound for weight loss and Kisunla for Alzheimer’s. These products could be the cornerstones of the company’s business for years to come. And these are the reasons why investors are optimistic about the company’s prospects today.

There are also ways for Lilly to grow in value, even though the stock may look expensive right now, trading at more than 100 times its trailing earnings. The future growth opportunities are just so enticing.

In particular, the actives of glucagon-like peptide-1 (GLP-1) are generating a lot of hype these days. And it already represents a significant part of the company’s sales.

Mounjaro and Zepbound combined sales of more than $4 billion last quarter

Two products that will likely be the top two money makers for Eli Lilly in the near future are Mounjaro and Zepbound. They contain the same active ingredient, tirzepatide, and are essentially the same drug, although Mounjaro is approved for diabetes and Zepbound for weight loss. In a clinical trial, tirzepatide showed that it could help people lose an average of 26.6% of their body weight over a period of 84 weeks, which is why it became such a promising asset for the company.

For the period ended June 30, Eli Lilly’s sales rose 36% to $11.3 billion. Mounjaro generated $3.1 billion in revenue, while Zepbound brought in $1.2 billion. Together, revenue from these GLP-1 products accounted for 38% of Eli Lilly’s top line. To put into perspective how quickly these drugs have grown, consider that during the previous year their combined sales were less than $1 billion (Zepbound wasn’t approved until November 2023, while regulators they gave Mounjaro the green light in May 2022). ). Their share of the top line last year was less than 12%.

These products will get even bigger

At 38% of sales, these products already represent significant parts of Eli Lilly’s business. But there’s no reason to expect them not to get even bigger. The anti-obesity market should be massive — worth $100 billion — and Eli Lilly should be a key player.

Revenue from Mounjaro and Zepbound could exceed $50 billion, according to analyst estimates. And even that might be a low number. Ultimately, it will depend on how many indications tirzepatide can accumulate.

It is currently approved for diabetes care and weight loss, but there may be opportunities beyond that. Studies have shown that tirzepatide can reduce the risk of heart failure and help with sleep apnea. And there are many obesity-related conditions and diseases that the drug could potentially treat, which is why it can be difficult to determine how much revenue it can generate for Eli Lilly.

Should investors worry about the lack of diversification?

In all likelihood, revenues from tirzepatide-related drugs will increase, and their percentage of total revenues will exceed 50%. This could be worrisome because it would make the business less diversified by relying so heavily on a single core drug. But this is not just any kind of drug either; is a game changer in the healthcare industry. Tirzepatide has the potential to be the best-selling drug ever.

If any company has such assets in its portfolio, it shouldn’t be a surprise if it takes the lion’s share of the top line — it would be difficult to develop other drugs with similar types of revenue opportunities. While there will always be a need to innovate and come up with new drugs, this is a great example of how the development of a single blockbuster drug can drastically transform a company’s growth prospects.

Is Eli Lilly Stock Still a Buy?

Eli Lilly shares are up more than 50% year to date. And in just three years, the stock has risen more than 230% in value.

But even though Lilly has become a hot stock of late, there’s still a case for it to be a good buy right now. It trades at a price-to-earnings-growth (PEG) ratio of about 1.4. That multiple could fall as analysts raise their expectations for future growth — which could happen as tirzepatide gains approval for more indications. And the lower the PEG ratio, the better an Eli Lilly buy it becomes.

I don’t think the stock is close to peaking: its revenue and profits could rise in the coming years. And while its valuation may seem expensive right now, that may not be the case in a few years if tirzepatide generates much more revenue. Eli Lilly remains one of the best stocks to buy in the healthcare industry today, and I don’t expect that to change anytime soon.