Eli Lilly announced more good news: Time to buy?

The pharmaceutical business is difficult. Developing new treatments costs hundreds of thousands of dollars, sometimes more. Despite the large amounts of money invested by pharmaceutical companies, many never make it to market. Many approvals end up falling short of sales expectations. However, in some cases, drug treatments can pay several times the amount invested in their development.

Analysts think that Eli Lilly (Lily 1.19%) is found in tirzepatide, the active ingredient in the weight loss drug Zepbound and the obesity drug Mounjaro. Tirzepatide has so far lived up to its high expectations. Late-stage studies have recently yielded more positive results. Let's take a look at what this means for investors.

Considering new label expansion

Tirzepatide was first approved for the treatment of type 2 diabetes about two years ago. Last year, it acquired a new adaptation for obesity. Now, Eli Lilly is targeting obstructive sleep apnea (OSA) with its new masterpiece. People with OSA may have difficulty breathing properly during sleep because their throat muscles contract and block the air passage. If left untreated, this condition can lead to other serious health problems, including various heart diseases.

According to Eli Lilly, 80 million adults in the United States have OSA, yet the condition is dangerously underdiagnosed, with approximately 85% of cases remaining untreated. Eli Lilly recently announced positive results from his two Phase 3 trials of tirzepatide in patients with OSA and obesity.of major pharmaceutical company They reported that the drug reduced episodes of hypopnea or apnea (when breathing decreases or completely stops, respectively) by about 30 per hour compared to a placebo. This gives Eli Lilly another key approval for tirzepatide.

Dizzying sales potential

How much revenue does tirzepatide generate at its peak? That depends on a variety of factors. The drug is approved for the treatment of diabetes and obesity, but needs to gain label expansion to reach its full potential. So far, so good. Some analysts initially expected the drug's peak sales to be $25 billion. However, recent developments indicate that Eli Lilly could surpass even that impressive number. The drug hit the market last year for the first time with full-year sales of more than $5 billion.

Its new indication for obesity treatment was lifted in November 2023. Since then, tirzepatide has been in short supply in pharmacies, a clear sign that demand far exceeds supply. Other analysts now believe the therapy could reach $34 billion in sales by 2029. For context, that's about the same total revenue Eli Lilly generated last year. Is this prediction too optimistic? Maybe. One thing is for sure: the simple answer to the question, “How much is tirzepatide's peak revenue?” “A lot.”

What does this mean for investors?

Some may worry that they have missed the boat. Eli Lilly's stock has soared more than 500% in the past five years. It's up more than 20% this year. How much upside does the stock price have left? The short answer to this question is also “a lot.” In addition to tirzepatide, Eli Lilly has a full portfolio of drugs, including relatively recently approved drugs, that can drive revenue growth over the long term.

The company's pipeline remains deep, the stock has grown rapidly in recent years, and it pays a respectable dividend. Eli Lilly's dividends have increased 101.6% over the past five years. It's hard to find fault with this stock, but here's one. Approval of the company's potential Alzheimer's disease drug, donanemab, has been delayed by U.S. regulators who need more time to review clinical trials that Eli Lilly once supported. Therapy approval.

But even without donanemab in the lineup; Eli Lilly's outlook remains bright. Given the existing lineup and pipeline, this issue is not a concern for the company. Eli Lilly is a big-money acquisition.