Is Eli Lilly Stock a bargain?

Developing brand new drugs is a long and expensive process that does not always yield a positive return on investment. Every now and then some pharmaceutical companies hit the jackpot and launch drugs that are worth all that effort. That is what Eli Lilly (NYSE: LLY) has its hands on tirzepatide, marketed as Mounjaro in the diabetes market and as Zepbound to aid in weight loss. Analysts predict peak sales of tirzepatide could reach $25 billion, but to get there Eli Lilly will have to earn more indications for its new crown jewel.

One exciting market the drugmaker is targeting is the area of ​​non-alcoholic steatohepatitis (NASH). Read on to find out what makes this area promising for Eli Lilly’s tirzepatide and what it means for the stock.

There is a great unmet need at NASH

NASH is a liver disease that, as the name suggests, is not due to excessive alcohol consumption. It is caused by a build-up of fat in the liver, which leads to fibrosis (scarring). Diabetes and obesity are among the leading risk factors for NASH, which can be fatal in severe cases. The point is: the prevalence of diabetes and obesity has increased significantly in recent decades. However, the market for therapies that treat NASH has not kept pace.

In fact, the U.S. Food and Drug Administration approved the first drug for NASH this year. In other words, there is still significant unmet need.

Eli Lilly, a longtime leader in diabetes drug development, hopes tirzepatide will eventually gain approval for the treatment of NASH. The drug produced solid results in phase 2 studies. One such study examined 157 participants who received a placebo or tirzepatide (in different doses) for 52 weeks. The results were that the drug met the primary endpoint of NASH resolution without worsening fibrosis (which actually improved with treatment).

It remains to be seen whether tirzepatide will confirm these results in phase 3 trials, but for now all is going smoothly with this project.

There are much better reasons to buy

Analysts have high expectations for the NASH market. Some think it will be worth $108.4 billion by 2030, meaning it will grow exponentially between now and the end of the decade. That’s good news for Eli Lilly, but here’s the not-so-good news for the company: Other drugmakers want to dominate this market, too. In fact, it can get extremely busy soon enough. The list of companies on this path is long.

Among pharmaceutical giants Novo Nordisk And Pfizer are both in the running. Many smaller biotech companies are also active on this path, including the now well-known ones Viking therapies and of course, Madrigal pharmaceutical products, which has the only FDA-approved NASH therapy. Competition is normal for drug manufacturers. Eli Lilly’s Tirzepatide could still be a leader in this market even if many of its peers join in as well. But here’s the most crucial point: While the NASH field looks promising, it won’t make or break Eli Lilly’s prospects.

Tirzepatide is being developed to treat other conditions, including obstructive sleep apnea. The drug recently delivered positive Phase 3 clinical trial data from two studies in patients with OSA and obesity. Moreover, tirzepatide is already a blockbuster within the existing indications. Mounjaro generated just over $5 billion last year and launched in mid-2022. Zepbound, which was approved in November, posted revenue of $517.4 million in the first quarter.

Unless there is a catastrophic accident, this amount will exceed $1 billion this year. Zepbound’s rapid adoption (and Mounjaro’s continued momentum) led Eli Lilly management to raise its expectations for the year. If you add up the revenue that Zepbound and Mounjaro generate together, it seems like they are well on their way to meeting analysts’ high expectations. An approval from NASH would be a nice addition, but it almost feels like icing on the cake for the therapy.

Eli Lilly has many more drugs that will help drive revenue growth and has several exciting candidates in the pipeline. The company’s revenue and profits should grow much faster than those of the average pharmaceutical giant in the near future. Analysts agree: they think the drugmaker’s earnings per share will grow by an average of almost 63% annually. That’s phenomenal for a company of this size in virtually any industry. And that’s before we add that Eli Lilly is a solid dividend stock. There are far too many good reasons to invest in this company.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Mounjaro Targets a New Billion-Dollar Market: Is Eli Lilly Stock a Buy? was originally published by The Motley Fool