Eli Lilly (NYSE: LLY ) was not the first to market a GLP-1 drug. However, its Monjaro (for diabetes) and Zipbound (for weight loss) drugs have proven to be more effective than competing products. This has moved Eli Lilly to the head of the pack, but investors may be a little too excited about the company’s prospects. In 10 years, the story around this stock is likely to be very different.
Monjaro sales to rise 99% in 2025. Zip-bound sales were even 175% more efficient. Eli Lilly is the clear leader in the GLP-1 drug space with its highly successful drug.
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That’s good news, but investors know better than the company’s success. The stock has a very high price-to-earnings ratio of 44. By comparison, the stock at S&P 500 The average P/E is 28, and the average drug stock P/E is just under 23.
Investors excited about the GLP-1 drug are priced into Eli Lilly’s stock. Notably, Monjaro and Zipbound currently account for 56% of the company’s revenue and most of its growth. Buying Eli Lilly now is a bet that the company’s GLP-1 success continues.
The problem with buying Eli Lilly at its current value is that the pharmaceutical sector has a clear history to look back on. While Eli Lilly is the leader of GLP-1 today, New Nordisk First to market with GLP-1 drugs. Eli Lilly’s product is very effective and thus sells well. Novo Nordisk is still innovating, and other competitors, such as Pfizeralso looking at the GLP-1 niche. Eli Lilly could easily be toppled from its throne in a highly competitive sector like Novo Nordisk.
That alone should make investors worry about what Eli Lilly’s business will look like in 10 years. But there is even a specific threat to consider. Drugs are only granted patent protection for a limited time. Within a decade, Eli Lilly could fend off generic competition, which would normally reduce the revenue that branded drugs produce. Even in a best-case scenario, Eli Lilly’s GLP-1 success is time-limited.
Eli Lilly is aware of these issues and is spending today to build a drug pipeline for the future. However, investors buying Eli Lilly at its current value should consider what the future might look like if, more likely than not, the company’s fortunes take a turn for the worse.
