Eli Lilly and Company’s LLY shares have lost 8.2% in the past month. A lot of this price decline is due to the global uncertainty caused by the tariff war. With the Trump administration imposing sweeping tariffs, fears of a global recession resulted in a stock market rout worldwide. Though pharmaceuticals have been exempted from tariffs in the first round of reciprocal tariffs, they could well be Trump’s target in the next round, considering the President’s goal to shift pharmaceutical production back to the United States, mostly from European and Asian countries.

Stocks of both Lilly and rival Novo Nordisk NVO declined recently as Medicare excluded their expensive weight-loss medicines from its Part D prescription drug coverage.

Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock amid the broader market uncertainty.

Mounjaro & Zepbound: Key Top-Line Drivers for Lilly

Lilly’s most popular products are its tirzepatide medicines, diabetes drug Mounjaro and weight loss medicine, Zepbound.

Despite being on the market for less than three years, Mounjaro and Zepbound became key top-line drivers for Lilly in 2024, with demand rising rapidly. Mounjaro and Zepbound generated combined sales of $16.5 billion in 2024, accounting for around 36% of the company’s total revenues.

However, quarter-over-quarter growth of Zepbound and Mounjaro in 2024 was hurt by supply and channel dynamics. Slower-than-expected growth and unfavorable channel dynamics hurt sales of Mounjaro and Zepbound in the second half, raising concerns about moderating demand for these drugs.

LLY’s Efforts to Drive Mounjaro & Zepbound Sales

Lilly is hopeful that sales of Mounjaro and Zepbound will pick up in 2025 as it launches the drugs in new international markets and ramps up manufacturing in the first half of the year.  Since 2020, Lilly has committed more than $50 billion to build/expand manufacturing capacity for its products including Zepbound and Mounjaro, in the United States and Europe.

Lilly expects to launch Mounjaro in new markets outside of the United States and Europe throughout 2025. The launch of Mounjaro in new international markets is expected to contribute to the drug’s sales growth in the second half of the year. 

Approvals for new indications can also drive sales of Mounjaro and Zepbound higher. In late December, the FDA approved Zepbound for its second indication, moderate-to-severe obstructive sleep apnea in adults with obesity. In addition, LLY filed tirzepatide for heart failure, which further expands the opportunity for the candidate. It also expects to announce data from a cardiovascular outcome study on tirzepatide this year.

LLY’s New Drugs & Pipeline Success

Other than Mounjaro and Zepbound, Lilly has gained approvals for some other new drugs in the past couple of years. These include Omvoh for ulcerative colitis, BTK inhibitor Jaypirca for mantle cell lymphoma and chronic lymphocytic leukemia, Ebglyss for moderate-to-severe atopic dermatitis and Kisunla (donanemab) for early symptomatic Alzheimer's disease. Its new drugs contributed significantly to its top-line growth in 2024.

Lilly expects its new drugs, Mounjaro, Zepbound, Omvoh, Jaypirca, Ebglyss and Kisunla, along with the expanded use of existing drugs, to drive sales growth in 2025. It also expects the potential launch of new medicines like imlunestrant for metastatic breast cancer to contribute to growth in 2025.

Lilly is also making rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s, with several mid to late-stage pipeline readouts expected in 2025.

Competition Heating Up in the Obesity Space

The obesity market is heating up and is expected to expand to $100 billion by 2030, according to data from Goldman Sachs. Lilly and Novo presently dominate the market.

Lilly is investing broadly in obesity and has several new molecules currently in clinical development. These include two late-stage candidates, orforglipron, an oral GLP-1 small molecule, and triple-acting incretin, retatrutide (which combines GLP-1, GIP and glucagon), and some mid-stage candidates like bimagrumab, eloralintide and mazdutide. It expects data from phase III studies on orforglipron in type II diabetes and obesity in 2025. It also plans to file regulatory applications for orforglipron in obesity this year and for type II diabetes in 2026.

Several companies like Amgen AMGN and Viking Therapeutics VKTX are also making rapid progress in the development of GLP-1-based candidates in their clinical pipeline.

AMGN and VKTX’s products can pose strong competition to Mounjaro/Zepbound and NVO’s Ozempic/Wegovy in the future.

Amgen plans to conduct a broad phase III program on its dual GIPR/GLP-1 receptor agonist, MariTide, across obesity, obesity-related conditions and type-II diabetes, with the first studies expected to begin in the first half of 2025. Viking Therapeutics’ dual GIPR/GLP-1 receptor agonist, VK2735, is being developed both as oral and subcutaneous formulations for the treatment of obesity.

Others like Roche, Merck and AbbVie are also looking to enter the obesity space by in-licensing obesity candidates from smaller biotechs, which could threaten Novo Nordisk and Eli Lilly’s dominance in the market.

LLY’s Stock Price, Valuation and Estimates

Though Lilly’s stock has declined 1.7% so far this year, it has outperformed the industry’s decrease of 4.1% . The stock has also outperformed the sector & the S&P 500 index as seen in the chart below.

LLY Stock Outperforms Industry, Sector & S&P 500

Image Source: Zacks Investment Research

The stock is trading at a premium to the industry, as seen in the chart below.

LLY Stock Valuation

Image Source: Zacks Investment Research

Estimates for Lilly’s 2025 earnings have risen from $23.47 to $23.49 per share in the past 30 days, while those for 2026 have declined from $31.33 to $31.28 over the same timeframe.

LLY Estimate Movement

Image Source: Zacks Investment Research

Stay Invested in LLY Stock

Lilly has its share of problems. Sales of its key medicine, Trulicity, are declining in the United States due to competitive dynamics, including Mounjaro switches and supply constraints. Prices of most of Lilly’s products are declining in the United States mainly due to lower realized prices for insulins, primarily due to changes to estimates for rebates and discounts. Lilly’s U.S. net price has declined every year since 2021. In 2025, Lilly expects a mid-to-high single-digit percentage price decline, including U.S. Part D changes. Potential competition in the GLP-1 diabetes/obesity market is another headwind.

However, Lilly’s tremendous success with Mounjaro and Zepbound has made it the largest drugmaker with a market cap of more than $700 billion. Lilly’s stock has gone up by 420.3% in the past five years, mainly due to its successful new drug launches, particularly Mounjaro and Zepbound, and its solid pipeline potential. Lilly’s revenue growth is being driven by higher demand for Mounjaro, Zepbound, Verzenio, and others, which is making up for the decline in sales from Trulicity.

In 2025, Lilly expects to record revenues in the range of $58.0 billion to $61.0 billion, indicating an impressive 32% year-over-year growth.

Though sales of Mounjaro and Zepbound were soft in the second half of 2024, we believe that over time, the supply issues for Mounjaro and Zepbound should be resolved as the company increases production capacity. Also, Lilly looks well placed to get approval for several new drugs and label expansions for marketed drugs, including Mounjaro and Zepbound, in the next few years.

LLY returned $3 billion to shareholders in 2024 via share repurchases and dividends. The board of directors of Lilly approved a new $15 billion stock buyback plan and also announced a 15% increase in its quarterly dividend, which bodes well for the stock.

Despite its expensive valuation, we suggest investors who own this Zacks Rank #3 (Hold) company retain it as it has solid prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Novo Nordisk A/S (NVO) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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