Loading summary
Transcript1 lines
- [00:00]
A
Welcome back to the rundown for another weekend deep dive. Today we are talking about the newest member of the 4 comma club, Eli Lilly. Eli Lilly recently became the first health care company to hit a trillion dollar market cap. And the gap between Lilly and its competitors is wide and growing. Johnson and Johnson sits below 500 billion while their main weight loss rival Novo Nordisk is under 200 billion. So in today's episode we'll tell you how this nearly 150-year-old company from Indianapolis became one of the hottest stocks on Wall Street. How Lilly came to dominate the GLP1 market, and whether a trillion dollar valuation is just a start or is the stock already approaching its peak. We got a great one for you today. Let's dive in. It took Eli Lilly nearly 150 years to hit the $1 trillion mark. That's by far the longest compared to all the other companies in the tech heavy club. For for example, Meta was the fastest to hit a trillion dollars doing it in just 17 years. Now Eli Lilly has seen their stock price surge recently because of The Rise of GLP1 Weight loss drugs like Manjaro and Zepbound. But Eli Lilly has a track record of making life changing blockbuster drugs. Back in the 1920s, Eli Lilly became the first company to mass produce insulin. Now I have type 1 diabetes, so this discovery obviously is pretty life changing for me. So insulin was Eli Lilly's big breakthrough in the 1920s. Then you fast forward to 1987. Eli Lilly launched Prozac, the first SSRI antidepressant. That drug totally changed how depression was treated and it became one of the best selling medicines of its era. But neither insulin or Prozac compares to what is happening with the GLP1 craze. So let's get into that. The engine behind Eli Lilly's trillion dollar valuation is, is a molecule called Tirzepatide that is the active ingredient inside Manjaro and Zeppelin, the two GLP1 blockbuster weight loss drugs that completely transformed Eli Lilly's business. Manjaro first hit the market back in May of 2022. This drug was designed to help type 2 diabetics with their blood sugar, but it also resulted in weight loss. Then in 2023, Eli Lilly released Zeppelin, which was specifically designed for weight loss once the FDA signed off on using Tirzepatides for obesity. And these drugs have been so incredibly popular, the sales numbers are just insane. In Q3 of this year, Manjaro sales grew by 109% while Zepbound's grew by 185% combined. Manjaro and Zepbound did over $10 billion in sales in Q3 alone and now make up 57% of all of Eli Lilly's revenues. Again, these drugs were launched like three years ago. So pretty much overnight, these two drugs have transformed Eli Lilly's business. Now, the reason there's so much demand for these drugs is because they work really well. Clinical studies show that patients lose up to a quarter of their body weight on Manjaro or Zepbound. And this is where we need to talk about Novo Nordisk, because the Danish pharma giant used to be the leader in the weight loss space. But Eli Lilly came in and took their lunch. Novo Nordisk was the first on the scene with their GLP1 Ozempic, which they released back in 2018. And that drug became a household name. In fact, I've seen people refer to all weight loss drugs as Ozempic. Now it's almost got like a Kleenex type brand. And the reason for that was because Ozempic was the first and frankly the only player in the space. The drug went viral on social media. Every celebrity started using it. People couldn't believe that you could take a shot once a week and start losing a ton of weight. Now, Zempic was originally developed for for type 2 diabetics to control their blood sugar, but it also resulted in weight loss. So Novo Nordisk released a weight loss only version called WeGovy in 2021. And that also was very popular because remember, Eli Lilly didn't release their first GLP1 until 2022. But despite Novo Nordisk head start, Eli Lilly has now overtaken Novo Nordisk. As of this year, Eli Lilly has about 58% of the US GLP1 prescriptions, versus 42% for Novo Nordisk. And the sales numbers aren't looking so great. In their latest quarter, Novo Nordisk missed expectations. Sales of Ozempic reached $4.7 billion, which was up just 3% year over year and down from the 15% year over year growth in Q2. WeGovy did a little bit better. Sales top 3.1 billion, up 18% year over year, but down from the 67% year over year growth in Q 2. So the growth for Ozempic and Wegovy is slowing down. And there are a couple of reasons why this is happening. See, Novo Nordisk drug mimics a hormone in your gu, the GLP one that tells your brain that you're full. Well, Lilly's drug goes one step further. Tirzepatides mimic two hormones, the GLP one and the gip, which makes them more effective. Now, beyond the effectiveness of the drugs, Novo Nordisk also made some mistakes along the way. For one, during the Ozempic Boom back in 2021, Novo Nordisk has supply chain issues and they couldn't meet the demand. So when Eli Lilly launched Manjaro in 2022, they, they were able to immediately take a decent chunk of the market. And then there was the compounding problem. See, because Novo Nordisk was dealing with shortages, the FDA allowed compounding pharmacies to make knockoff versions of the drug. This significantly hurt Novo Nordisk's sales because these compound pharmacies would sell these GLP1s for much cheaper than Novo Nordisk. Now, you fast forward to today and there's no more shortages. And the FDA has stopped compounding pharmacies from making GLP1s. But the damage was already done. Eli Lilly was able to capitalize on this situation. They took over the weight loss market in the US and now they're a trillion dollar company. But now the question is, is there any gas left in this rally or has the stock peaked? Well, let's break it down. With Eli Lilly already sitting at a trillion dollar market cap, what are the reasons to still be bullish? Well, I'll give you a few. The first is the tam, the total addressable market for weight loss drugs. Morgan Stanley estimates that the global obesity drug market will hit $100 billion by 2030. Right now, it's estimated that about 6% of the U.S. population is using GLP1s. That's expected to go up to 9% by 2030, according to JP Morgan. And we're just talking about the U.S. market here. The international market is barely tapped. Morgan Stanley expects global adoption to rise from 1% today to 10% by 2030. A 10x jump that could unlock tens of billions of dollars in revenue for eli L. Now, one way to get more people to use GLP1s is by turning it into a pill. See, right now with these current GLP1s, you have to inject yourself once a week for Eli Lilly. These injections are expensive to make and they're hard to distribute because they have to be refrigerated. But if there was a pill form of Zepbound, that could be a game changer and significantly increase the number of people taking it. Eli Lilly is already deep in development of their oral weight loss pillow. It's called or Forgliforin. And in trials it's already outperforming the pill that Novo Nordisk is working on, this weight loss pill is expected to hit the market by next year. So it's happening pretty soon. If Eli Lilly can sell a relatively cheap weight loss pill that works as well as their injections, it's hard not to imagine this pill becoming very popular. In fact, Eli Lilly is already expecting the pill to be a huge hit. The company spent six and a half billion dollars to build a new manufacturing plant in Houston dedicated to manufacturing the active ingredients in or for glyfrin. And this factory is just one of four factories they expect to build in the next five years. And they're investing over $27 billion in the process. But you know, weight loss is just one reason to be bullish. Studies are showing that GLP1s help with sleep apnea and fatty liver disease and even heart failure. So that opens up the door to entirely new multi billion dollar markets as well. But there's more. While Tirzepatides is the headline story, Lilly isn't just a one drug company. It also has other fast growing franchises in cancer treatment, immunology, and also a deep R and D pipeline in areas like cardiovascular diseases and Alzheimer's. And if you look at their numbers right now, the company is projecting revenues to hit $63 billion this year. And they're expecting revenues to increase by 15 to 20% annually for the next few years. You add in the fact that their gross margins are over 80%, you start seeing why investors are so excited about this company and why it's already hit a trillion dollar valuation. So that's the bullish side of the story. Now let's look at the bearish case. With any investment, you have to look at the risk because there are legit challenges that could pose a threat to Eli Lilly moving forward. First up, the most obvious one is competition. Right now, Eli Lilly has the upper hand. Their drugs are better, they have more growth, and they have better execution. But this space is about to get crowded. For one, Novo Nordisk is making changes to get back in the game. They've replaced their old CEO and their board and they're trying to turn the company around. In fact, they're expected to release their weight loss pill by early 2026, before Eli Lilly. So that could give them a spark and a leg up when it comes to weight loss pills. Then you have other companies planning to launch their own GLP1 pills like Pfizer. They gave up on trying to make their own pill and just spent $10 billion to buy Medcera a biotech company working on next generation obesity P if this pill is effective and hits the market soon, this could immediately give Pfizer a seat at the table. And then you have smaller players trying to innovate. Biotech firm Viking Therapeutics has shown impressive early data on both injectable and oral weight loss drugs. If their trials hold up, they could become a legitimate contender in the category as well. So while Eli Lilly has the lead right now, the race is still underway. And that brings me to pricing pressure. See, right now, GLP1s are expensive. And that's one reason why these companies are making such massive revenue gains and high margins. But prices are already starting to come down. In early November, Eli Lilly and the US Government agreed to expand access to obesity medicines to Americans. Starting as early as April 1, Medicare beneficiaries who are obese or overweight will have access to Zepbound if approved for 50 bucks a month. On top of that, both Eli Lilly and Novo Nordisk have cut prices for self pay patients. Now, Eli Lilly believes that lower prices will lead to more volume, but lower prices will hit their margins. And finally, the big risk is the patent cliff. Exclusivity in the pharma space doesn't last forever. Lilly knows this firsthand. After Prozac lost patent protection, sales and profits fell sharply as generic versions flooded the market. The same thing is going to eventually happen to GLP1. So Eli Lilly has a limited window to really cash in on the GLP1 hype. But they're already starting to feel some pricing pressure from other players entering the space. So what's my take here? Well, for one, it's easy to talk yourself into Eli Lilly. The success they're seeing with Manjaro and Zepbound is, well, wild. And with the potential game changing weight loss pill right around the corner, it could really expand the number of people taking GLP1s to lose weight and help with other conditions. But their stock is expensive. Right now, the company is trading at a forward PE of around 35, which is much higher than the industry average of 20. And if you look at the average price target on Wall street for Lilly, it's around $1,000, which is what the stock is trading at today. You know, I can totally see a future where people take a daily GLP1 pill for breakfast. But I'm not convinced that Eli Lilly will be the only pill in town. And with the way this stock is priced right now, one slight miss in future earnings could cause a correction. And if that happens, your investment will start looking like someone's weight chart on Ozempic. Well all right guys, that's it for today's weekend Deep Dive. Hope you guys enjoyed today's episode. Let me know in the comments on Spotify or YouTube about what you thought about today's deep dive and if you're bullish or bearish on Eli Lilly moving forward. And while you're at it, don't forget to hit us with a 5 star rating vote in today's Spotify poll. All that engagement really does help us out and it helps other people find the show. Thank you guys so much for listening, watching and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow.