A Pharmaceutical Powerhouse on the Rise
Eli Lilly, the pharmaceutical giant, is basking in the glory of its remarkable success in the weight loss space. Its blockbuster diabetes and obesity care medications, Mounjaro and Zepbound, have propelled the company to a market capitalization of approximately $720 billion, making it the most valuable pharmaceutical company globally.
A Lucrative Opportunity Unfolds
Despite the excitement surrounding the weight loss market, a recent announcement from the company suggests that investors still have a chance to capitalize on its growth. On December 9, Lilly’s board of directors approved a $15 billion stock buyback program, which is expected to be executed over the next three years. This move implies that management believes the stock is undervalued, given the company’s expansive pipeline and growth opportunities.
Unlocking Growth Potential
Lilly’s primary tailwinds in the weight loss market come from its glucagon-like peptide-1 (GLP-1) receptor agonists Mounjaro and Zepbound. While these medications have generated billions of dollars in sales, there are several reasons to believe the company has yet to tap into its full potential in diabetes care and chronic weight management. Additionally, GLP-1 treatments may have the potential to treat other conditions, such as sleep apnea, arthritis, chronic kidney disease, Alzheimer’s, and some forms of addiction, and to lower cardiovascular risk.
Diversifying into New Markets
Lilly has also made significant strides in other areas, including Alzheimer’s disease and eczema treatment. The FDA approval of its Alzheimer’s disease drug, Kisunla (donanemab), and eczema drug, Ebglyss, has opened up new avenues for growth. The global Alzheimer’s therapeutics market is expected to be worth nearly $31 billion by early next decade, while Ebglyss’s unique injection format sets it apart from other eczema treatments.
Valuing Lilly’s Growth
To gauge Lilly’s valuation, it’s essential to consider its PEG ratio, which stands at 0.74. While this doesn’t necessarily mean the stock is a bargain, it does suggest that the company’s valuation is reasonable given its growth prospects. With the new buyback program and management’s comments, there’s reason to be optimistic about Lilly’s future.
A Compelling Investment Opportunity
For investors with a long-term time horizon, Lilly presents a compelling opportunity to buy and hold. With its diversified pipeline, growth potential, and reasonable valuation, the company is poised for continued success.
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