The pharmaceutical business is a tricky one. Developing novel therapies costs hundreds of thousands of dollars, sometimes more. Many never make it to the market despite substantial sums invested by drugmakers. Many of those that do earn approval end up falling short of sales expectations. However, occasionally, some drug therapies pay for the money invested in their development several times over.
Analysts think that’s the kind Eli Lilly (NYSE: LLY) has in tirzepatide, the active ingredient in the weight loss medicine Zepbound and the obesity treatment Mounjaro. Tirzepatide has, so far, met the lofty expectations it carries. It recently delivered more positive results from late-stage studies. Let’s look into what those could mean for investors.
Tirzepatide first earned approval to treat type 2 diabetes about two years ago. Last year, it won a new indication for obesity. Now, Eli Lilly is targeting obstructive sleep apnea (OSA) with its new crown jewel. Patients with OSA can have trouble breathing properly during sleep due to their throat muscles contracting and blocking air passageways. If left untreated, the condition can contribute to other serious health issues, including various heart problems.
According to Eli Lilly, though 80 million adults in the U.S. have OSA, the condition is dangerously underdiagnosed, with about 85% of cases being left untreated. Eli Lilly recently released positive results from two phase 3 studies for tirzepatide in patients with OSA and obesity. The pharmaceutical giant reported that the medicine led to about 30 fewer episodes of hypopnea or apnea (when breathing is reduced or stops completely, respectively) per hour compared to a placebo. This sets up Eli Lilly to earn another important approval for tirzepatide.
How much will tirzepatide generate in peak revenue? That depends on various factors. Having been approved for diabetes and obesity, the medicine still needs to earn label expansions to live up to its full potential. So far, so good. Some analysts initially predicted peak sales of $25 billion for the medicine. But recent developments show that Eli Lilly could exceed even that amazing number. The medicine generated over $5 billion in sales last year — its first full year on the market.
Its new indication to treat obesity came down in November 2023. Since then, tirzepatide has been experiencing shortages at pharmacies, a clear sign that the demand is vastly outpacing the supply. Other analysts now believe the therapy could hit sales of $34 billion by 2029. To put that in context, that’s about as much as Eli Lilly generated in total revenue last year. Is this prediction too optimistic? Maybe. One thing is for sure: The short answer to the question “How much will tirzepatide generate in peak revenue?” is “a lot.”
Some might worry that they have missed the boat. Eli Lilly’s shares have soared by more than 500% in the past five years. They are up by more than 20% this year. How much upside is left for the stock? The short answer to that question is also “a lot.” Even beyond tirzepatide, Eli Lilly has a full lineup of medicine that should drive revenue growth for a long time, including some relatively recent approvals.
The company’s pipeline remains deep, and the stock pays a decent dividend that has grown rapidly in recent years. Eli Lilly’s payouts are up 101.6% in the last five years. It’s hard to find fault with this stock, but here is one: The approval of the company’s potential Alzheimer’s disease medicine, donanemab, is being delayed by regulators in the U.S. who need more time to look into the clinical trials Eli Lilly used to support the therapy’s approval.
But even without donanemab in its lineup, Eli Lilly’s prospects remain bright. This issue is nothing to worry about for a company given its existing lineup and pipeline: Eli Lilly is a table-pounding buy.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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