Eli Lilly (NYSE: LLY) experienced a notable 3.5% increase in share price on Thursday, Aug. 1, following the announcement of positive clinical trial outcomes for its high-profile weight management drug, tirzepatide. The trial revealed that certain patients treated with tirzepatide exhibited a significantly lower risk of cardiovascular death and other heart failure-related issues compared to those receiving a placebo.
Tirzepatide’s Market Impact and Clinical Success
Already marketed as Zepbound for weight management and Mounjaro for diabetes, tirzepatide has seen impressive sales growth, mirrored by Eli Lilly’s rising stock price. To assess whether Eli Lilly remains a strong investment, it’s essential to delve into the implications of its new clinical findings for heart failure patients.
Clarifying the Headlines
Initial headlines might suggest that tirzepatide universally prevents heart attacks and strokes, but the reality is more nuanced. The Phase 3 Summit trial focused on adults with obesity and heart failure with preserved ejection fraction (HFpEF)—a condition where the heart pumps normally but fails to fill adequately. HFpEF affects approximately 3 million Americans, with obesity, diabetes, and age as common risk factors.
While Eli Lilly hasn’t found a way to halt aging, tirzepatide is a front-runner for treating type 2 diabetes and weight management. The Summit trial enrolled 731 patients with both HFpEF and obesity, many also managing diabetes, and assigned them to either tirzepatide or a placebo group.
Significant Trial Outcomes
Over two years, patients on tirzepatide experienced a 38% reduction in heart failure-related events, such as hospitalization and cardiovascular death. Moreover, these patients achieved an average weight loss of 15.7%, compared to just 2.2% for those on a placebo.
Prospects for Eli Lilly and Tirzepatide
Eli Lilly plans to submit these promising results to the FDA later this year. Given the severity of HFpEF, with most patients not surviving beyond five years post-diagnosis, FDA approval for treating HFpEF with obesity by 2025 appears likely.
Regardless of this approval, tirzepatide sales are forecasted to skyrocket from $9.3 billion in the first quarter of 2024 to between $25 billion and $50 billion annually at peak.
Broader Company Outlook
Eli Lilly isn’t reliant on tirzepatide alone. The company anticipates total sales growth from $34.1 billion in 2023 to between $42.4 billion and $43.6 billion this year. Another notable contributor is Verzenio, a breast cancer treatment, with first-quarter sales up 40% year-over-year to an annualized $4.2 billion.
Investment Considerations
Despite a recent 16% decline from its July peak, Eli Lilly’s stock remains highly valued, trading at approximately 58 times the midpoint of management’s adjusted earnings forecast for 2024. Should tirzepatide sales falter below $25 billion annually, investor confidence—and the stock—could wane.
Eli Lilly recently assured that U.S. tirzepatide manufacturing will soon meet demand, ending the FDA’s allowance of compounding pharmacies to produce alternative versions. A similar resolution is anticipated for semaglutide, tirzepatide’s key competitor from Novo Nordisk, likely eliminating access to semaglutide from Hims & Hers Health and compounding pharmacies by year-end. This shift favors tirzepatide’s sales trajectory, already setting industry records.
Strategic Insights for Traders
Risk-averse traders may shy away from pharma stocks trading at over 50 times earnings expectations. However, for those with a higher risk tolerance, Eli Lilly presents a compelling opportunity. Integrating Eli Lilly shares into a diversified portfolio and maintaining a long-term perspective of at least five years could prove advantageous.
Key Takeaways
- Positive Trial Results: Tirzepatide shows significant cardiovascular benefits for HFpEF patients.
- Sales Growth: Expected to climb sharply, potentially reaching up to $50 billion annually.
- Stock Valuation: High valuation may deter risk-averse investors.
- Regulatory and Market Dynamics: Favorable FDA developments and competitive positioning enhance outlook.
Conclusion
Eli Lilly’s strategic advancements with tirzepatide highlight its potential as a lucrative investment despite inherent risks. The company’s robust pipeline and strong market presence make it a noteworthy consideration for traders looking to capitalize on the evolving pharmaceutical landscape.
