Eli Lilly achieved a significant milestone on Friday, hitting a market capitalization of $1 trillion. This makes it the first pharmaceutical company to break into a realm typically associated with tech giants, highlighting its emergence as a leader in the weight-loss sector.
This year, the company’s stock has surged over 35%, largely fueled by the fast growth of the weight-loss drug industry.
What was once viewed as a specialized area has transformed into one of the most profitable sectors in healthcare, with increasing demand for obesity treatments.
While Novo Nordisk was initially ahead, the popularity of Lilly’s medications, Munjaro and Zepbound, has allowed it to surpass its competitor in prescriptions.
Shares of the company climbed 1.3%, reaching a record high of $1,057.7.
Lilly now boasts one of the highest valuations among major drug companies, trading at about 50 times its expected earnings for the coming year. This reflects strong investor confidence in the ongoing demand for obesity treatments, according to data from LSEG.
In contrast to the broader U.S. stock market, almost all indicators of Lilly’s stock show it performing significantly better. Since the debut of Zepbound in late 2023, Lilly’s stock has skyrocketed over 75%, while the S&P 500 has increased by more than 50% in the same timeframe.
In its latest quarterly report, Lilly announced revenues exceeding $10.09 billion from its obesity and diabetes products, making up more than half of its overall revenue of $17.6 billion.
Kevin Gade, COO at Lilly investor Barr & Gaynor, expressed some hesitations about attributing the stock’s rise solely to obesity treatments. “They’re doing more than just obesity, but I’m not convinced that there’s anything else driving this surge,” he mentioned.
Industry analysts project that the weight-loss drug market could reach $150 billion by 2030, with Lilly and Novo set to dominate the majority of the anticipated global sales.
Investors are now looking ahead to Lilly’s oral obesity treatment, olforglipron, which is expected to gain approval early next year.
A note from Citi analysts last week characterized the latest GLP-1 drugs as a “sales phenomenon,” indicating that olforglipron stands to gain significantly from the success of its injectable predecessors.
Lilly’s recent commitment to lowering prices on weight-loss medications in partnership with the White House, along with plans to increase production capacity, seems promising for its future growth.
James Shinn from Deutsche Bank reflected on how Lilly is starting to resemble the “Magnificent Seven,” the tech giants like Nvidia and Microsoft that have largely driven this year’s market advancements.
The company had once been held in high esteem but lost some investor favor due to disappointing news and earnings earlier on. Still, it appears to be on the upswing again, perhaps positioning itself as a viable option for investors, especially amid recent uncertainties within some AI stocks.
However, analysts remain cautious. They’ll be monitoring whether Lilly can sustain its growth amidst potential price pressures on Munjaro and Zepbound, as well as whether its plans for expansion and a diverse pipeline can counteract any margin challenges.
