Company Reports

We are holding our fair value estimate for Eli Lilly steady after the company reported positive tirzepatide (Mounjaro/Zepbound) data in treating obstructive sleep apnea and obesity. We had largely expected the positive results, which support our robust peak annual sales forecast for the drug at over $60 billion annually across all indications. The solid data does help reinforce the company’s wide moat.

We are increasing Eli Lilly’s fair value estimate to $500 from $450 following solid fourth-quarter results with robust sales from diabetes drug Mounjaro and strong pipeline advancements running ahead of our expectations. Eli Lilly is executing very well in selling recently launched drugs and in developing the pipeline, a key element in the firm’s wide moat. However, we still view Lilly as overvalued, with the market likely too optimistic on the firm’s weight-loss drugs. Even with our robust peak expectations of over $60 billion a year for Eli Lilly’s GLP-1 drugs in weight loss and diabetes, we still view the stock as overvalued.

Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Lilly holds industry-leading growth potential as the company is launching several new blockbusters and patent losses are fading.

We are raising our Eli Lilly fair value estimate to $450 from $368 after updating our long-term GLP-1 model to include wider use of and greater adherence to these cardiometabolic drugs. We have increased our assumptions for overall biopharma GLP-1 sales in 2031 to nearly $170 billion across diabetes ($50 billion), obesity ($85 billion), and overweight ($35 billion). This includes nearly $140 billion in sales from big biopharma firms Novo Nordisk ($65 billion), Eli Lilly ($65 billion), Pfizer ($4 billion), and Amgen ($3 billion), which is higher than our prior estimate of just over $100 billion. Overall, we assume a greater proportion of patients will receive (and stay compliant with) treatment, including overweight (lower BMI) patients, albeit with more competition and at a lower price. We now think more than 25% of obese Americans and 15% of overweight Americans will receive treatment in 10 years, with the vast majority receiving branded GLP-1 therapies. We think U.S. prices could fall substantially as volumes increase (in line with payer contracts) and as new entrants launch (beginning in 2026-27), with average net prices falling from roughly $8,000 annually to $3,000 in 10 years.

Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects have improved as the company is launching several new blockbusters and patent losses are fading.

Eli Lilly reported strong third-quarter results that were largely in line with our net expectations, and we are holding firm to our Lilly fair value estimate. While the firm remains very well positioned for growth with cardiometabolic drug Mounjaro, we believe the market is overly optimistic on the outlook for the company.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

Eli Lilly reported strong second-quarter results slightly ahead of our projections, but we don't expect any major changes to our fair value estimate based on the outperformance. We believe Lilly's strong growth in the quarter reflects several recent innovative product launches that reinforce the firm's wide moat. However, despite projecting above-consensus peak sales for diabetes and weight loss drug Mounjaro (the firm's most important recent launch), we still view Lilly's stock as overvalued, with the market showing signs of over-optimism for the firm.

Eli Lilly revealed details of the positive phase 3 Alzheimer’s study Trailblazer-ALZ 2 with donanemab that are largely in line with our expectations. We are not making any major changes to our outlook for donanemab or Eli Lilly’s fair value estimate. However, the strong data helps to reinforce the firm’s wide moat, building on an innovative pipeline of next-generation drugs.

Eli Lilly's announced acquisition of the private cardiometabolic firm Versanis Bio for up to $1.925 billion doesn't have a major impact on our Lilly fair value estimate or wide moat rating. However, the acquisition gives Lilly another potential weight-loss treatment with phase 2 drug bimagrumab.

Eli Lilly’s announced acquisition of Dice Therapeutics for $2.4 billion doesn’t have a major impact on the company’s fair value estimate or wide moat rating largely due to the smaller size of the deal. However, the planned acquisition will provide Lilly with an interesting midstage oral IL-17 drug (DC-806) for psoriasis. In a phase 1 study, DC-806 supported a 44% reduction in psoriasis (as measured by the PASI score) in the high dose group. Importantly, the drug didn’t appear to cause any major safety issues. While the study was small, with less than 50 patients, the early-stage data is encouraging. With injectable drugs targeting IL-17 for psoriasis gaining over $6 billion annually and the overall psoriasis market holding over $40 billion in annual sales potential, DC-806 could be a major drug if later-stage studies are successful. We expect phase 2 psoriasis data for DC-806 in mid-2024, which should provide a better perspective on the true potential of the drug. The oral convenience of the drug could be a differentiator as most psoriasis drugs are injectable. Also, the drug’s mechanism of action is different than the oral psoriasis drugs from Amgen (Otezla) and Bristol (Sotyktu), which provides a unique potential for Eli Lilly.

The approval of Novo Nordisk's GLP-1 agonist Wegovy in 2021 has led to a demand surge for the active ingredient semaglutide in various forms, including diabetes drug Ozempic. Eli Lilly's approved diabetes drug Mounjaro is poised to generate even stronger weight loss and to launch in obesity around the end of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with incremental innovation in this rapidly expanding market that will support their wide moats. We assume Novo Nordisk's Wegovy, higher-dose oral and injectable semaglutide, and novel GLP-1/amylin cagrisema will support more than 35% share in 2032. Eli Lilly is likely to remain Novo's chief competitor, driven by potential launches of Mounjaro in obesity as well as an oral GLP-1 and a novel triple agonist in 2025, resulting in a 40% share by 2032. We think Amgen, Pfizer, and other biopharma firms could begin to launch their own GLP-1-based obesity drugs as early as 2025, with these new players growing to roughly one quarter of the market by 2032.

Following a review of the weight-loss drug market, we are increasing Eli Lilly’s fair value estimate to $368 from $289 per share largely based on increased projections for diabetes and weight loss drugs Mounjaro and orforglipron. We now expect Mounjaro holds peak annual sales potential above $25 billion and orforglipron will reach almost $10 billion. Mounjaro entered the market in 2022 for diabetes treatment, and we expect a label expansion into obesity treatment in 2023 based on industry-leading efficacy. Additionally, we expect orforglipron to reach the market in 2026 and develop into a major drug based on the convenience of oral administration. Orforglipron's efficacy looks positioned to match Novo Nordisk’s competitive drugs Wegovy and potentially high-dose oral semaglutide, and as a non-peptide agonist, the drug doesn't require any special delivery technology. While Mounjaro and orforglipron still need to gain approvals in weight loss followed by payer coverage, we believe the outlook for the drugs is increasingly strong. The strong outlook for Mounjaro and orforglipron should help support high returns on capital while also generating the capital needed to develop next-generation drugs, a key pillar in Lilly’s wide moat.

Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects have improved as the company is launching several new blockbusters and patent losses are fading.

Eli Lilly reported largely positive phase 3 data with Alzheimer’s drug donanemab in line with our expectations, and we don’t expect any major changes to the firm’s fair value estimate. In the study, the drug impressively met all primary and secondary endpoints related to slowing cognitive and functional decline. However, the side effect of serious ARIA (swelling of the brain) occurred in 1.6% of patients and led to at least two deaths. Despite the serious but rare side effect, we expect the drug will gain approval in early 2024 based on the strong efficacy, adding another new likely blockbuster launch for Lilly while also reinforcing the firm’s wide moat.

We are increasing Eli Lilly’s Uncertainty Rating to High from Medium based on increasingly variable outcomes for several key drug launches. Diabetes and weight loss drug Mounjaro is likely to develop into a major new drug, but the cone of uncertainty for the drug is higher, since several variables are affecting the sales potential for the weight loss indication, including level of insurance coverage and pricing. Alzheimer’s drug donanemab holds the potential to become another major new drug, but its outlook also faces a wide range of outcomes, since the market potential could be very large, but the visibility on market uptake is less clear. With Mounjaro and donanemab representing close to half of projected sales by the end of the next 10 years, we believe a High Uncertainty Rating is appropriate. This is more elevated than most big biopharma firms, which tend to have Medium Uncertainty Ratings.

Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects are improving as the company is launching several new blockbusters and patent losses are fading.

Eli Lilly reported solid first-quarter results slightly below our projections, and we don't expect any major changes to our fair value estimate. In tandem with earnings, Lilly disclosed strong phase 3 Mounjaro data (Surmount 2) reflecting 15.7% average weight loss on the highest dose. The strong data reinforces our peak annual sales estimate for the drug above $18 billion for both weight loss and diabetes.

We don’t expect Eli Lilly’s decision to cut insulin prices by 70% to have a significant impact on our $289 fair value estimate for the company. Even though insulins represent over 15% of total sales for Lilly, we believe the announced price reduction will not materially hit the firm’s cash flows, largely due to the pricing structure around insulin, which is heavily rebated. While the exact level of insulin rebates is unclear, we believe rebates represent close to 80% of insulin list prices. The level of rebating that will occur following the 70% price cuts (to be enacted in the fourth quarter) will likely shrink, leaving Lilly less affected than the price cuts would suggest.

Eli Lilly's innovative culture and strong financial commitment to developing the next generation of drugs set the company apart from its peers and fuel its long-term growth. Following a very steep patent cliff in 2014, Lilly's growth prospects are improving as the company is launching several new blockbusters and patent losses are fading.