Eli Lilly Earnings: Pipeline Gains and Great Diabetes and Weight-Loss Sales

Key Morningstar Metrics for Eli Lilly

• Fair Value Estimate: $500.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Eli Lilly’s Earnings

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

Despite this outlook, we view Eli Lilly’s execution as excellent. In the quarter, total sales increased 28%, led by close to $2 billion in incremental sales of Mounjaro, which now represents over 20% of total sales. While older diabetes drug Trulicity fell by 14%, we are not overly concerned, as Mounjaro should more than offset declines going forward. Also, Zepbound (the same drug as Mounjaro, but used for weight loss) gained $176 million in the first quarter of its launch. With the supply of Mounjaro/Zepbound expected to increase by at least 50% in 2024, robust growth looks likely, since the market is already capacity-constrained. Outside cardiometabolic, Verzenio (up 42%) looks well-positioned based on a first-mover advantage within the CDK4/6 adjuvant breast cancer market.

In the pipeline, Lilly is redeploying capital extremely well. Positive phase 2 NASH data with tirzepatide (an active ingredient in Mounjaro and Zepbound) increases the probability of success in the hard-to-treat disease. Also, expected 2024 phase 3 starts for olomorasib in lung cancer and lepodisiran in cardiovascular disease add to an already excellent late-stage pipeline. We are most bullish on phase 3 obesity and weight loss drugs retatrutide (potentially best in efficacy) and orforglipron (oral convenient dosing), with key data likely in 2025.