It's hard not to admire what Eli Lilly(NYSE: LLY) has accomplished over the past five years. The drugmaker has been riding a wave of strong financial results and excellent regulatory progress to become the largest healthcare company by market capitalization. It's inching closer to a $1 trillion valuation -- and at the rate it has been going, don't be surprised if it hits that milestone within a year.
However, despite the terrific gains Eli Lilly has already delivered, it's not too late to invest in the stock. Here are six reasons why Eli Lilly is still worth buying.
1. Tirzepatide
Sold under the brand names Mounjaro and Zepbound, tirzepatide has been an incredible growth driver for Eli Lilly. In 2022 -- the year it was first approved in the U.S. -- some analysts predicted that it could generate as much as $25 billion in peak sales and become one of the best-selling drugs in the industry's history.
That estimate looks prophetic now. Tirzepatide has been flying off the shelves, and it turns out the $25 billion might have been low-balling the therapy's potential. In the second quarter, Mounjaro's sales were $3.1 billion, while Zepbound's were $1.2 billion -- that's more than $4 billion in a single three-month period in an industry where most drugs never manage to generate $1 billion annually at any point in their patent-protected life cycles.
Nor has tirzepatide reached its limit in terms of potential indications for which it could be prescribed. Lilly recently reported positive phase 3 trial results for the drug in sleep apnea, as well as in helping prevent the onset of type 2 diabetes in overweight and pre-diabetic adults. It is being investigated in other indications, including non-alcoholic steatohepatitis.
2. Blowout financial results
Tirzepatide is helping Eli Lilly's financial results soar, but other medicines are also contributing to its top-line growth. In the second quarter, sales of Humalog, an insulin brand, increased by 43% year over year to $631.6 million. Immunosuppressant Taltz recorded revenue of $824.7 million, 17% higher than the prior-year period. Jardiance, a diabetes medicine, racked up sales of $769.6 million, increasing 15% year over year. And cancer therapy Verzenio reported $1.3 billion in revenue, 44% higher than the prior-year quarter.
Of all the most important medicines in Eli Lilly's portfolio, only diabetes medicine Trulicity's sales moved in the wrong direction, and that's partly because Zepbound is cannibalizing demand for it. In fairness, Trulicity has also experienced supply issues.
Eli Lilly's revenue increased 36% year over year in the second quarter to $11.3 billion. It grew by 46% when excluding the one-time revenue from the sale of the rights to a low blood sugar medicine called Basqimi that Eli Lilly reported in the corresponding period of 2023. Its net income totaled $3.5 billion, 86% higher than in Q2 2023.
3. Strong late-stage pipeline
When it comes to investing in the pharma industry, investors have to look ahead to when a company's current key medicines will lose patent protection. But Eli Lilly has been planning ahead for that for some time. Its late-stage development pipeline features several promising products.
In weight loss, Eli Lilly is working on orforglipron and retatrutide, both of which could generate well over $1 billion in annual revenue by 2030, according to some estimates. Additionally, the company's once-weekly insulin medicine could also earn regulatory approval within the next year or two. Eli Lilly recently had another major regulatory win when the FDA approved Kisunla (generically known as donanemab) as a treatment for Alzheimer's disease.
There should be several others moving forward.
4. Promising early-stage pipeline
Some of Eli Lilly's early-stage programs are also attracting notice already. A gene therapy for genetic hearing loss that it is developing is currently in a phase 1/2 clinical trial. The drugmaker reported some data from this study earlier this year, revealing that this investigational treatment had restored hearing in one patient who was deaf from birth in a mere 30 days.
Of course, it's far too early to celebrate. That's just one data point, albeit an impressive one. A lot could happen that might derail Eli Lilly's plans for this gene therapy. However, it again highlights the company's innovative potential.
5. The dividend matters
Eli Lilly's dividend program looks attractive, too. Although its 0.58% yield isn't much, that's because its share price has been on a tear lately. The company has increased its payouts by 101.6% in the past five years. The most important factor for dividend investors remains the strength of a company's underlying business and its willingness to reward shareholders with payout hikes. Eli Lilly's business is rock solid and it has a track record of increasing its payouts, which makes it an excellent stock for income seekers.
6. Its valuation isn't what it seems
Eli Lilly's shares look expensive at first glance. The company's forward price-to-earnings (P/E) ratio tops 55. The average for the healthcare industry is 19.6 as of this writing. Conventional wisdom might suggest that Eli Lilly's shares look far too expensive at current levels, but that isn't so.
Analysts expect the company's earnings per share to increase at an average of 73 % per year in the next five years. Analysts' average price target of just over $1,000 also implies some upside from its current price of about $900. It's still time to invest in the stock.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
