Eli Lilly (LLY): Navigating Zepbound Lawsuits, Tariff Risks, and Future Growth#
Eli Lilly and Company LLY faces a complex landscape. While Mounjaro and Zepbound drive growth, lawsuits against compounding pharmacies and potential tariffs pose significant challenges. Advancements in heart disease and cancer research offer promising long-term prospects. Recent market activity saw LLY trading at $805.23, down +2.5%, reflecting investor sensitivity to these developments. This analysis delves into these factors, offering insights for informed investment decisions.
Despite its position as the world's most valuable healthcare company, LLY has experienced relatively modest stock growth of approximately +6% over the past year, a stark contrast to its performance in 2024, which was largely fueled by the success of Mounjaro and Zepbound. This subdued performance underscores the challenges and uncertainties the company faces, even amidst the blockbuster success of its key drugs.
Mounjaro and Zepbound Sales Surge: Driving Revenue, Facing Competition#
Mounjaro and Zepbound, both GLP-1 agonists, are pivotal to LLY's revenue surge. Mounjaro, initially for type 2 diabetes, and Zepbound, for weight loss, have shown remarkable efficacy. In Q2 2024, Mounjaro's sales hit $3.1 billion, a staggering +215% year-over-year increase. Zepbound, newer to the market, saw a +140% sales increase between Q1 and Q2 2024. This growth underscores the drugs' impact on LLY's financial performance.
However, LLY faces stiff competition from Novo Nordisk, which markets Ozempic and Wegovy. Despite clinical trials suggesting that LLY's drugs are more effective, Novo Nordisk's marketing prowess provides a competitive edge. LLY must enhance its marketing to capitalize on its drugs' superior efficacy. The positive correlation between GLP-1 agonist drug sales and LLY's stock price indicates that strong sales figures for Mounjaro and Zepbound are likely to drive the stock price higher, making their performance a key indicator for investors.
Legal Battles: Protecting Zepbound and Mounjaro's Market Share#
To safeguard its revenue and intellectual property, LLY has initiated legal action against compounding pharmacies like Strive Pharmacy and Empower Pharmacy, alleging the creation of unauthorized versions of Mounjaro and Zepbound. These lawsuits test LLY's ability to combat compounding pharmacies now that Zepbound and Mounjaro are off the FDA shortage list.
LLY alleges that these pharmacies falsely market their products as personalized versions of the drugs that have been clinically tested and are made using stringent safety standards. LLY is also sending cease and desist letters to approximately 50 other pharmacies and telehealth companies, signaling its commitment to protecting its intellectual property. The lawsuits aim to protect LLY's revenue streams by restricting the production of compounded tirzepatide medications. However, these legal battles will likely increase legal expenses for the company.
The outcome of these lawsuits could significantly impact Zepbound and Mounjaro revenue in the next 1-2 years. A successful outcome for LLY would solidify its market position and deter other pharmacies from engaging in similar practices. Conversely, an unfavorable outcome could embolden compounding pharmacies and erode LLY's market share. The lawsuits also highlight the importance of intellectual property protection in the pharmaceutical industry.
Hims & Hers Partnership: Pricing Strategy and Market Access#
Hims & Hers, a telehealth platform, has added LLY's Zepbound and Mounjaro to its offerings, pricing them at $1,899 per month. Hims & Hers anticipates significant revenue contributions from its weight-loss specialty in 2025, projecting at least $725 million in revenue. However, a Bank of America analyst has expressed doubts about the potential revenue contribution from tirzepatide sales on the Hims & Hers platform, citing the high price compared to LLY's direct-to-consumer platform, LillyDirect, which charges $500/month. Furthermore, LLY has stated that it has no affiliation with Hims & Hers in selling Zepbound, adding further complexity to the partnership.
The high price point on the Hims & Hers platform could damage LLY's reputation and create confusion among consumers. Furthermore, the lack of affiliation between LLY and Hims & Hers raises questions about the quality and safety of the medications offered on the platform. This situation underscores the importance of strategic alignment and quality control in pharmaceutical partnerships.
Tariff Risks: Potential Impact on Profit Margins#
The potential implementation of tariffs by the Trump administration poses a significant threat to LLY's profit margins. The pharmaceutical industry has been identified as a key area of focus for these tariffs, raising concerns about the potential impact on drug prices and profitability. The impact of tariffs on LLY's gross margins and overall profitability will depend on the specifics of the tariffs and any retaliatory measures taken by other countries. RBC Capital Markets analysts suggest that the effects could be minimal if tariffs apply to low-cost drug substances, given generally high gross margins. However, tariffs pegged closer to drugs' list prices or designed to offset offshore IP tax advantages could be more impactful.
Companies with more ex-U.S. IP and manufacturing would be more exposed to the negative effects of tariffs. LLY may need to reevaluate its supply chain to mitigate tariff impacts and focus on cost management to protect its gross margins. To mitigate the potential impact of tariffs, LLY may need to make adjustments to its supply chain and cost management strategies. This could involve diversifying its sourcing of raw materials, optimizing its manufacturing processes, and negotiating better prices with suppliers. Furthermore, LLY may need to adjust its pricing strategies depending on tariff levels and competitive responses.
Lepodisiran: Promising Results in Reducing Heart Disease Risk#
LLY recently announced positive Phase 2 results for Lepodisiran, an investigational small interfering RNA (siRNA) therapy designed to lower the production of lipoprotein(a) [Lp(a)], a genetically inherited risk factor for heart disease. In the Phase 2 ALPACA study, Lepodisiran significantly reduced Lp(a) levels by an average of 93.9% over the 60 to 180-day period after treatment with the highest tested dose (400 mg), meeting the primary endpoint. These results demonstrate the potential of Lepodisiran as a novel therapy for reducing heart disease risk in individuals with elevated Lp(a) levels. The drug's ability to significantly lower Lp(a) levels and sustain these reductions over an extended period is particularly promising. Participants who received the 16 mg and 96 mg Lepodisiran doses experienced a 40.8% reduction and a 75.2% reduction in Lp(a) levels over the same time period, respectively. Lepodisiran also met additional secondary endpoints, showing reductions in Lp(a) levels following one or two administrations of each of the three tested doses across all timepoints assessed throughout the nearly 18-month-long study.
Advancing Cancer Research at AACR#
LLY is set to present preclinical data for agents targeting SMARCA2 (BRM) and multiple KRAS mutations at the American Association for Cancer Research (AACR) annual meeting. In an oral presentation, LLY, in collaboration with Foghorn Therapeutics, will present new preclinical data for LY4050784, a selective inhibitor of SMARCA2, in combination with chemotherapy, pembrolizumab, and KRAS inhibitors in preclinical models of SMARCA4 mutant cancers. These presentations highlight LLY's commitment to advancing cancer research and developing novel therapies for difficult-to-treat cancers. The company's focus on targeting SMARCA2 and KRAS mutations reflects its strategy of pursuing innovative approaches to cancer treatment.
Dividend Comparison: Eli Lilly vs. Altria#
For dividend investors, the choice between LLY and Altria (MO) presents a compelling dilemma. Altria, a tobacco giant, offers a significantly higher dividend yield of 7%, well above the S&P 500 index average of 1.3%. However, this high yield comes with risks, as Altria's business has been struggling to grow in recent years, and its rate of dividend increases has been modest. LLY, on the other hand, offers a lower dividend yield but boasts strong growth prospects driven by its blockbuster drugs Mounjaro and Zepbound. While LLY's dividend yield may not be as attractive as Altria's, its potential for future dividend increases is significantly higher due to its strong growth trajectory. The decision between LLY and Altria depends on the individual investor's risk tolerance and investment goals. Investors seeking high current income may prefer Altria, while those prioritizing long-term growth and dividend potential may find LLY more appealing.
Analyzing Eli Lilly's Stock Performance: What's Next?#
Despite being the most valuable healthcare company globally, LLY's stock performance has been relatively lackluster over the past 12 months, rising by only approximately +6%. This contrasts with the significant growth experienced by the company in 2024, driven primarily by its blockbuster drugs Mounjaro and Zepbound. Analysts predict a +27.56% upside for LLY stock, with a one-year price target of $1,022.72. GuruFocus estimates a +40.28% upside potential based on their GF Value metric. These estimates suggest that LLY stock is currently undervalued and has the potential for significant appreciation. However, investors should be aware of the risks associated with LLY stock, including intense competition in the GLP-1 agonist market, legal challenges, and potential negative impacts from tariffs.
Key Takeaways for Investors#
- Growth Drivers: Mounjaro and Zepbound remain critical for revenue growth, but competition is intensifying.
- Legal Risks: Lawsuits against compounding pharmacies could impact revenue streams.
- Tariff Impact: Potential tariffs pose a threat to profit margins.
- Innovation Pipeline: Advancements in heart disease and cancer research offer long-term opportunities.
- Stock Valuation: Analysts predict significant upside potential, but risks remain.
Financial Metrics Overview#
| Metric | Value |
|---|---|
| Current Price | $805.23 |
| Change | -20.68 |
| Changes Percentage | -2.5% |
| Market Cap | $763.35 B |
| EPS | $11.73 |
| PE Ratio | 68.65 |
| 1-Year Price Target | $1,022.72 |
| GF Value Upside Potential | +40.28% |
Analyst Consensus#
| Metric | Estimate | Source |
|---|---|---|
| Average Price Target | $1,022.72 | Analyst Estimates |
| Upside Potential | +27.56% | Analyst Estimates |
| GF Value Upside Potential | +40.28% | GuruFocus |
What This Means For Investors#
Eli Lilly's current situation presents a mixed bag for investors. On one hand, the company's GLP-1 drugs, Mounjaro and Zepbound, continue to drive significant revenue growth, positioning LLY as a leader in the lucrative weight loss and diabetes treatment markets. However, this success is tempered by several challenges: ongoing legal battles to protect its intellectual property, potential tariff risks that could squeeze profit margins, and intense competition from established players like Novo Nordisk. The company's strategic initiatives, such as the partnership with Hims & Hers and the expansion of its direct-to-consumer platform LillyDirect, aim to broaden market reach but also introduce complexities and potential reputational risks. While analysts predict a substantial upside for LLY stock, investors should carefully weigh these factors and monitor key developments in the coming months. Ultimately, the long-term success of LLY hinges on its ability to navigate these challenges, capitalize on its innovative pipeline, and maintain its competitive edge in a rapidly evolving pharmaceutical landscape.