Eli Lilly stock has been on a tear over the last five years – appreciating by +200% during that time. That is something that you generally would not expect from a large cap pharma company with >$300bn of market cap.
That kind of move makes you worried – is it up too much? I am chasing the move here and overpaying?
It is right to ask those questions – and my view is future of Lilly is brighter than ever and particularly more attractive vs. its peers.
what gets me excited? It is all about Mounjaro / obesity growth story and I see upside to numbers and exciting catalysts to highlight obesity franchise roll-out in 2H23.
UPSIDE TO NUMBERS – DRIVEN BY MOUNJARO / LOWERED CONSENSUS EXPECTATIONS
Mounjaro is currently only approved for diabetes, but everyone knows that it is posed to be the BEST-IN-CLASS obesity drug (better than Novo Nordisk’s Wegovy or Ozempic)
After rockstar launch out of the gate (that was driven by off-label use of Mounjaro in obesity), LLY faced capacity constraint for its GLP1 franchise – limiting volume growth for Mounjaro and its existing GLP-1 franchise, Trulicity.
Below you can see that Mounjaro launch has far outpaced any drugs in the category.
LLY is also pushing to expand access while preserving value – while volume has been largely flattish over the past couple months, $ revenue per script is going up rapidly as LLY opens up more access (just under ~50% patients still remained on patient access program / i.e. free drug program as of 4Q).
Demand is not a problem given that the market remains highly supply constraint.
Given the script dynamic, consensus expectations have been coming down and buyside largely understand this – therefore, my view is that a “miss” likely gets looked over – there is now even potential for a beat due to lowered expectations.
At the latest weekly script, the product is already annualizing at consensus revenue (as of April 3rd 2023) for Mounjaro in 2024 if you apply Trulicity’s gross to net to Mounjaro. This means there is SIGNIFICANT UPSIDE to 2024 consensus for Mounjaro and Lilly.
Mounjaro (tirzapatide) has been gaining significant market share – in its first year on the market, Mounjaro gained 17% market share – and that is with capacity constraint.
EXCITING CATALYSTS UPCOMING AFTER TRAILBLAZER AD-2 DATA READOUT
Donanemab is LLY’s Alzheimer’s disease drug – they have P3 data coming up in 2Q23. This has been a problem from catalyst path perspective, but now buyside expectations are low.
After that, we will get nice string of catalysts for LLY that should get investors excited about Mounjaro / tirzapatide use in obesity.
- Supply capacity expansion: LLY expects to DOUBLE its integrin (largely Trulicity/Mounjaro) capacity by YE2024 as more manufacturing lines/facilities come on-line.
- Completion of tirzapatide/Mounjaro filing for obesity by mid-2023.
- Tirzapatide approval in obesity: as early as fall 2023.
Equity market is always forward-looking – given that Mounjaro/Tirzapatide obesity launch is likely to be at the end of 3Q, investors are likely to position for that starting in 2Q – after donanemab data – which may drive weakness in the stock.
There are other interesting catalysts as well, but LLY equity story right now is all about obesity launch. Non-obesity launches that are “cherry on top” are immunology launches into major categories (multi-billion $ opportunities).
- Lebrikizumab in atopic dermatitis
- Mirikizumab for ulcerative colitis
LLY IS NOT CHEAP- BUT IT IS VERY HIGH QUALITY NAME THAT WILL BUY DOWN ITS MULTIPLE THROUGH NUMBERS UPSIDE
We are now looking at a stock that looks like it is trading over 30x 2024 consensus P/E, but refined analysis suggest that with upside to estimates, the stock is trading at closer to 25-28x 2024 P/E – which still is not cheap, but now looks much more reasonable especially given its very strong growth profile (high teens EPS growth for the near-future with very strong visibility).
IN CLOSING..
For above reasons, I remain constructive on LLY despite its massive move it has made over the past 5 years.
Obesity has very high potential to become the biggest category in pharmaceuticals that is just being formed and LLY has the best product to drive that marker formation.
Strong upside to numbers with good catalyst path – I like the risk/reward.
*not investment advice – please do your own research.
