Eli Lilly just made Zepbound even more appealing. Here’s what smart investors need to know.

One of the biggest growth narratives in the pharmaceutical industry right now is weight loss drugs. Glucagon-like peptide-1 (GLP-1) agonists such as Ozempic, Wegovy, Rybelsus, Mounjaro, and Zepbound are becoming increasingly popular among patients with diabetes and obesity.

All these drugs are produced by only two companies: Novo Nordisk and Eli Lilly (LLY -1.07%). For now, Novo Nordisk is the 800-pound gorilla in the GLP-1 arena. But Lilly has made significant progress over the past two years, and I think its momentum is about to be supercharged.

Let’s dig into Lilly’s latest move on Zepbound, its blockbuster chronic weight management drug, and assess why now might be a profitable time to pick up some stock.

What did Eli Lilly just do with Zepbound?

Although GLP-1 drugs have helped millions of people around the world, they have some drawbacks. Not all health insurance plans include coverage for treatments like Mounjaro or Zepbound. While this does not directly prohibit access to GLP-1 drugs, it leaves patients in a difficult position with the best option being to pay out of pocket. This can cost nearly $1,000 per month, which is clearly not optimal or even feasible for most patients.

A recent announcement by Eli Lilly suggests the company understands the economic dilemma some patients face. According to a recent press release, Lilly is now offering a four-week supply of 2.5-milligram Zepbound ampoules for $399, as well as a 5-mg dose for $549.

Image source: Getty Images.

Why this move is significant

Lilly’s efforts to make costs more manageable may not come anytime soon as headwinds from combination treatments take shape. An alternative to brand-name drugs, combination treatments are sometimes created to replicate FDA-approved products that fall short. However, the FDA has warned that poor compounding practices can compromise patient health because they can include improper dosages of ingredients or even contamination.

In particular, the telemedicine company His and her health made waves by starting to sell the compound semaglutide through its website. Semaglutide is the main ingredient in Novo Nordisk’s Ozempic, Wegovy and Rybelsus. According to Hims & Hers’ second quarter earnings transcript, the company plans to offer “tirzepatide and liraglutide to the existing combination semaglutide offering in the near future.” Tirzepatide is the main ingredient in Mounjaro and Zepbound Lilly, while liraglutide is found in Novo Nordisk’s Saxenda and Victoza.

You might be wondering Why one would opt for a compound medicine. Well, as mentioned above, out-of-pocket medical expenses can drain your bank account quickly. Depending on your needs and financial position, combination medications may be a more cost-effective solution. Moreover, both Novo and Lilly have struggled to meet demand for their GLP-1s over the past year — making combination alternatives a more attractive option for some patients. Both pharmaceutical giants have acquired additional manufacturing facilities in an effort to combat supply constraints.

I think Lilly’s decision to offer Zepbound at a discount has two advantages. The Zepbound discount signals the company’s commitment to increasing its supply production while providing patients with an FDA-approved product. According to the press release, these lower-dose vials of Zepbound “not only help us meet the high demand for our obesity medications, but also expand access for patients looking for a safe and effective treatment option.”

Eligible patients can access these discounted vials of Zepbound through Lilly’s self-pay distribution channel, LillyDirect. This distribution effort “ensures that patients and providers can be confident that they are receiving genuine Lilly drugs, building on the company’s efforts to help protect the public from the dangers posed by the proliferation of counterfeit, fake, unsafe or untested imitation Lilly drugs.”

To me, Lilly has a direct hit on the combination treatment sellers. Between making the price of Zepbound comparable to what you might get from a mixing lab and offering the treatment through a direct individual payer channel, I see little reason to opt for a non-FDA approved drug.

Is Eli Lilly stock a good buy right now?

I admit that valuing Lilly stock is a challenging exercise. Despite some contraction in valuation multiples, a forward price-to-earnings (P/E) ratio of 59 leaves the stock far from cheap. I think Lilly stock has seen huge buying activity for two main reasons. First, Mounjaro and Zepbound turned out to be big winners for Eli Lilly.

Second, Lilly’s Alzheimer’s candidate, donanemab, was recently approved by the FDA. This opens another door for the pharmaceutical giant as it looks for further disruption. While donanemab has yet to add to Lilly’s growth, I think the positive news and new market prospects have gone some way into the stock.

LLY PE ratio data (before) by YCharts.

Grand View Research estimates that the total addressable market (TAM) for GLP-1 drugs was worth USD 36.8 billion in 2023. Furthermore, its research suggests that the global GLP-1 market will expand at a compound annual growth rate (CAGR) of 21.6% from 2024 to 2030.

Given that TAM for Zepbound will continue to grow by billions of dollars for years, and that the drug only received FDA approval last November, I’d say the growth narrative is just getting started. And since Lilly is making access to Zepbound much more attainable, I think it will start acquiring many more customers.

So even though Eli Lilly stock is expensive, I still see the stock as a good buy. To me, the long-term narrative is starting to take shape, and I think picking up Lilly stock and holding it for the long term will prove to be a profitable decision if you’re patient.