Eli Lilly's historic valuation rests almost entirely on obesity drugs still facing pricing pressure and competition
Eli Lilly hit a US$1tn market capitalization on Friday, making it the first health-care company to join an elite group of tech giants—a milestone that reveals how heavily investors are banking on the pharmaceutical giant's dominance in the weight-loss drug space.
According to Reuters, the stock briefly reached record highs before trading near US$1,051, with gains exceeding 35 percent this year as the obesity treatment market has exploded into one of healthcare's most lucrative segments.
Wall Street estimates the weight-loss drug market alone could be worth US$150bn by 2030, with Eli Lilly and Novo Nordisk controlling the majority of projected global sales.
But this valuation comes with significant risk.
Eli Lilly now trades at roughly 50 times anticipated earnings over the next 12 months, according to LSEG data cited by Reuters—among the richest valuations in big pharma.
As per BMO Capital Markets analyst Evan Seigerman, this “points to investor confidence in the longer-term durability of the company's metabolic health franchise,” but it also signals that the market has priced in aggressive growth assumptions that may face headwinds.
The company's earnings are heavily concentrated in these drugs.
Reuters reported that combined revenue from its obesity and diabetes portfolio exceeded US$10.09bn out of total quarterly revenue of US$17.6bn, meaning more than half of Eli Lilly's revenue now depends on two products.
Eli Lilly's tirzepatide—sold as Mounjaro for diabetes and Zepbound for obesity—has become the world's best-selling drug, eclipsing Merck's Keytruda, according to Reuters.
In the third quarter alone, CNBC reported that Mounjaro generated US$6.52bn in revenue (up 109 percent year-over-year) while Zepbound posted US$3.59bn (up 184 percent year-over-year).
The company has overtaken rival Novo Nordisk, whose stock has dropped nearly 45 percent this year, according to CNBC.
Reuters noted that Novo's Wegovy launch faced supply shortages in 2021, allowing Eli Lilly to gain ground, while Eli Lilly's drugs showed stronger clinical efficacy and faster manufacturing scale-up.
Investors are watching for Eli Lilly's oral obesity drug, orforglipron, expected to gain approval early next year.
As per Citi analysts cited by Reuters, the latest generation of GLP-1 drugs have already proven to be a “sales phenomenon,” and the oral version could expand the addressable market significantly by offering convenience over injections.
In October, Eli Lilly lifted its annual revenue forecast by more than US$2bn at the midpoint on surging global demand.
The competitive landscape remains contested.
CNBC reported that Pfizer won a US$10bn bidding war with Novo Nordisk for obesity drugmaker Metsera earlier this month, signalling that other pharmaceutical players are making aggressive moves into the space.
Analysts and investors, according to Reuters, are watching whether Eli Lilly can sustain current growth as prices of Mounjaro and Zepbound come under pressure, and whether scale-up plans and pipeline diversification can offset a potential margin squeeze.
A government pricing deal with the Trump administration may expand access to as many as 40 million potential US candidates for obesity treatment but could weigh on near-term revenue, Reuters noted.
