Eli Lilly stock is it a buy after rising 5% in one day?

Important Points

• Eli Lilly has achieved another significant clinical milestone in the field of weight management.
• Strengthen leadership in the rapidly growing field of therapy due to this achievement.
• A robust product lineup and pipeline, combined with excellent financial results, lead to a buy recommendation.

Eli Lilly (NYSE: LLY) typically has a track record of outperforming the market, but it has been struggling this year. In addition to general market fluctuations, it has faced clinical setbacks, guidance that fell short of expectations, and tariff threats. However, recent clinical developments have stimulated the stock price.

Eli Lilly's stock price has fallen by 5% year-to-date (while the S&P 500 has risen by 9%), making it worth considering the company's recent news and evaluating whether the market's reaction was appropriate.

Another Victory in the Field of Weight Management

Eli Lilly is developing an oral GLP-1 diabetes and weight loss drug called Orforglipron. A few weeks ago, the company reported good results in the Phase 3 trial for this candidate drug, but the data was not as strong as Wall Street had hoped. Orforglipron reduced the average weight of overweight or obese patients by 12.4% in a 72-week study, which significantly underperformed the effects seen in the same patient population with the company's injectable GLP-1 therapy, Zepbound. After announcing these results, the company's stock price plummeted.

This time, the company announced the results of another Phase 3 trial of orforglipron targeting patients who are overweight or obese and also have diabetes. Diabetic patients find it more difficult to lose weight, but in this 72-week study, patients on the highest dose lost an average of 10.5% of their body weight (about 22.9 pounds). Orforglipron met all primary and secondary endpoints of the trial and is ready for submission to regulatory authorities.

This oral GLP-1 drug has previously been successful in a Phase 3 trial aimed at diabetes patients focusing on lowering A1C levels, and it is expected to be approved within the next year.

What this means for Eli Lilly

Orforglipron is not the first approved oral GLP-1. Novo Nordisk's "Rybelsus" has been on the market for years. Orforglipron may not even be the first oral GLP-1 approved for weight loss purposes. Novo Nordisk is awaiting approval for the oral version of Wegovy. However, Eli Lilly does not need to be the first on the market. The oral weight loss GLP-1 market is very promising. Oral tablets are much easier and cheaper to manufacture, store, and transport than injectable drugs.

In other words, Eli Lilly will be able to cost-effectively scale up production of the highly demanded oral formulation of weight management drugs (as evident from the remarkable sales of Zepbound) and will likely be able to offer it at a lower price than injectable obesity treatments (the out-of-pocket cost for Zepbound is quite high).

Furthermore, many patients prefer oral tablets over painful injections, making it a win-win situation. Some estimates suggest that Orforglipron could generate $12.7 billion in sales by 2030. This is quite close to the $15.6 billion in sales generated by Eli Lilly in the second quarter.

Is it time to buy stocks?

The results of Orforglipron confirm that Eli Lilly has become a leader in the weight management market. The company's efforts in this field are expected to bring phenomenal top-line growth over the next decade. Along with the diabetes treatment "Mounjaro", sales of Zepbound could reach nearly $62 billion by 2030, significantly surpassing the $45 billion in sales that Eli Lilly generated last year.

Furthermore, Orforglipron will also contribute, and Eli Lilly has several other drugs that could have a meaningful impact on the weight management pipeline. Leteraplutide is a good example. This investigational drug mimics the action of three gastrointestinal hormones, rather than two like Zepbound.

In addition to its lineup and pipeline for weight management and diabetes, Eli Lilly is diversifying into oncology, immunology, and neuroscience. The Alzheimer's treatment drug "Zycof" is also an important approval and is expected to become a blockbuster. The new eczema drug "Ebguris" is similar.

Eli Lilly's sales are expected to grow incredibly rapidly over the next five years as a major pharmaceutical company, justifying the company's valuation. Its projected price-to-earnings ratio is 32 times, significantly exceeding the healthcare industry's average of 16.6 times. However, considering its recent and ongoing groundbreaking achievements and strong financial results, Eli Lilly deserves a premium.

This stock is not just a buy based on the recent Orphogryphon-related news. There are many other reasons to invest in the company and hold the stock for the long term.

Disclaimer: For informational purposes only. Past performance is not indicative of future results.