On Friday, Eli Lilly became the first pharmaceutical company to join the exclusive club of tech giants by achieving a market value of $1 trillion. This milestone is a clear indication of its rise as a major player in the weight loss industry. The company’s shares have increased by over 35% this year, which has been the result of the development of the obesity drug market.
New Obesity Treatments Create Huge Market
Over the past two years, new and highly effective treatments for obesity have reached the market. The category has become one of the most lucrative segments in healthcare. Sales of Lilly’s torzepatide have topped Merck’s Keytruda as the world’s best-selling drug. Torsepatide is sold as Monjaro for type 2 diabetes and Zepbound for obesity.
Novo Nordisk had the early lead in this space, but Mounjaro and Zepbound have jumped in popularity. That helped the company beat its rival in prescriptions. Lilly pulled ahead partly because the 2021 Wegovy launch from Novo was hurt by supply shortages that gave Lilly room to gain ground. The US company’s drugs have also shown stronger results in clinical tests. Lilly has been faster to build up manufacturing and expand distribution, too.
Stock Price Reaches All-Time High
Shares briefly hit a record high, trading nearly 1% higher at $1,051. Lilly now trades at one of the richest valuations in big pharma, at about 50 times its expected earnings over the next 12 months, according to LSEG data. This shows investors believe demand for obesity drugs will remain strong.
Shares have also risen much more than the broader US stock market. Since the late 2023 launch of Zepbound, Lilly is up over 75 per cent. The S&P 500 rose just over 50 per cent in that time. In the most recent quarterly report, Lilly reported combined revenue of more than $10.09 billion from its obesity and diabetes portfolio, more than half of its $17.6 billion overall revenue.
Pill Version Could Be Next Big Thing
In a note last week, Citi analysts said the latest generation of GLP-1 drugs has already been a sales phenomenon. Orforglipron is ready to benefit from the inroads made by its injectable predecessors. Lilly is set to benefit from a deal with the Trump administration. The company plans billions in investment to boost US production. Analysts have said the pricing deal with the White House may hurt near-term revenue. But it greatly expands access.
It adds as many as 40 million potential US candidates for obesity treatment. Lilly is starting to look like the Magnificent Seven again, said James Shin. He is the director of Biopharma Equity Research at Deutsche Bank. He was talking about the tech heavyweights, including Nvidia and Microsoft. These companies have powered much of the market’s returns this year.
Company Once Fell Out of Favour
At one point, investors positioned Lilly within that top tier. After some disappointing news and earnings, it slipped out of favour. Now, however, it can possibly stand as an alternative for investors, especially given recent worries and weakness in some AI stocks, Shin added.
Still, analysts and investors are watching whether Lilly can keep its current growth going. Prices of Monjaro and Zepbound are coming under pressure. Questions remain about whether its plans to scale up, along with its varied pipeline and dealmaking, will make up for a potential squeeze on profit margins.
The deluge of weight loss drugs has revolutionised the pharmaceutical industry. Obesity is a problem that affects hundreds of millions of people globally. There have not been any really good solutions for a long time. While diet and exercise may work for some individuals, they are not effective for everyone. The drugs that have been used for a long time and are approved for weight loss either have undesirable side effects or have low efficacy. The new drugs, for example, Mounjaro and Zepbound, operate on different principles. They imitate the hormones that regulate appetite and blood sugar levels. As a result, the patients experience less hunger and lose quite a lot of weight.
The demand has been so strong that both Lilly and Novo struggled to manufacture enough. Shortages meant people who wanted the drugs could not get them. Lilly spent billions building new factories to make more. The company is also working on an oral version because so many people do not like getting injections. It would be so much easier to take a pill.
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