Should You Buy Eli Lilly Stock As Drugmaker Continues To Outperform Benchmarks?
Haris Anwar | Sep 13, 2022 19:42
- Eli Lilly stock is looking expensive following its substantial gains in recent years
- There are also some signs that sales are weakening due to the falling demand for COVID treatments and patent loss on its cancer drug
- Despite these headwinds, LLY is a great long-term buy due to the company’s promising drug pipeline
Investors rushing to snap up safe bets amid the threat of a prolonged recession have propelled an impressive rally in Eli Lilly and Company's (NYSE:LLY) shares. The global drugmaker has seen its stock surge 31.6% during the past year, massively outperforming its peers.
LLY’s performance is even more impressive when compared to its benchmark ETF, the Health Care Select Sector SPDR® Fund (NYSE:XLV). While LLY stock rose to new highs in the past 12 months, XLV posted negative returns as cost pressures and supply chain hurdles hurt other drugmakers.
Source: InvestingPro
LLY stock, which has surged around three-fold during the past five years, may look expensive to some investors, especially when sales of the company’s COVID-19 antibody treatment are declining. Despite these headwinds, long-term investors have enough reasons to remain bullish on this name and take advantage of potential weaknesses in the coming days.
In the short term, Eli Lilly is facing some headwinds which could slow growth and hurt its stock. In its most recent earnings, the company reported that sales of its COVID-19 treatments fell 13% on declining demand for monoclonal antibody treatment, bebtelovimab. Such sales may continue to wipe out as the pandemic slowly enters an endemic stage with less buying interest from governments and individuals.
Another hit to Lilly’s sales is coming from the company’s cancer medicine Alimta, following the recent loss of U.S. patent exclusivity that allowed the introduction of competing, lower-cost generic copies and contributed to a 63% decline in sales for the branded product.
Get The App
However, drugmakers face patent-related risks all the time. Thus, investors should favor companies with a robust pipeline of new drugs that could replace the diminishing sales of older drugs. Eli Lilly is undoubtedly one of those pharma giants that have done well on this front.
h2 $100 Billion Sales /h2In a recent note to clients, Morgan Stanley named Eli Lilly one of the investment bank’s top picks for the next 12 months due to the company’s robust new product cycle outlook. The new launches from Lilly should bring in considerable sales, which will help boost the company’s top line, expand operating margins and lead to share growth.
Source: InvestingPro
Bank of America expects Eli Lilly’s recently approved treatment for Type 2 diabetes, Mounjaro (or tirzepatide), could generate as much as $100 billion in annual sales by 2035--if it’s also approved to treat obesity and several other illnesses.
The bank, in a note last Friday, said:
“Of course, we recognize that Lilly’s ~30X P/E (2023) reflects optimism (peers: 11X), but its differentiated growth profile and pipeline progression still justifies putting money to work in shares at current levels, in our view,”
The Food and Drug Administration approved in May the weekly tirzepatide injection. However, the company is actively looking to use the drug to treat seven separate illnesses, including kidney disease and sleep apnea.
In addition, in June, Eli Lilly’s Alzheimer’s experimental drug donanemab gained breakthrough status from U.S. regulators, a designation that will speed its consideration for approval.
The drug now becomes the third to receive the designation based on its ability to attack amyloid, an abnormal protein believed to be involved in the damage Alzheimer’s causes in the brain. Lilly told investors last month that the Food and Drug Administration has accepted donanemab for review under an accelerated approval pathway.
h2 Bottom Line/h2LLY has many catalysts for long-term growth that make its stock an attractive buy amid the current macro and geopolitical turmoil.
Disclosure: The writer doesn’t own the shares of Eli Lilly nor XLV.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.