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It’s a good time to be an investor in big pharma. Take Eli Lilly (NYSE: LLY), for example; its shares are up by 495% in the last five years alone, dramatically outperforming the S&P 500‘s return of just 69%. But can the company wow the market once again over the next five years? There’s a good chance that the answer to that question is yes, and here’s why.

The long boom is just getting started

In five years, in all probability Eli Lilly will be raking in billions of dollars every quarter from sales of its latest and greatest medicines for type 2 diabetes and obesity. It’s already doing that today; in the third quarter of this year, its drug for type 2 diabetes, Mounjaro, brought in more than $1.4 billion. And the company has only started to realize its strategic vision for penetrating those two markets.

That vision is to pursue a smorgasbord of research and development (R&D) programs, in an aggressive spirit which its chief scientific and medical Officer, Dan Skovronsky, describes as “all-the-above mode.” The idea is to advance multiple fresh candidates for the same conditions through clinical trials and regulatory review, while working to expand the reach of existing medicines — and doubling back to see if there are any missed opportunities within its own library of pharmaceutical assets.

If the plan works, it will yield a portfolio of both general and specialized tools that clinicians will be happy prescribing at industrial scale. Per a report by Grandview Research, the global market for weight management was $142 billion in 2022, and it’s only projected to keep growing, so Eli Lilly will doubtlessly have a giant ocean in which to cast its net.

Things are already underway and picking up steam. On Nov. 8, regulators gave the company the go-ahead for an expanded indication of Mounjaro to treat obesity, and the drug will now be sold for that purpose under the trade name Zepbound.

Aside from that, there are five programs in phase 3 clinical trials, which could yield two wholly new medicines if they get commercialized. And that’s not even counting its numerous earlier-stage programs, in which efforts range from expanding the indications of certain assets to testing new dosage ranges of others, to potentially squeeze even more efficacy out of past investments.

By late 2028, a handful of the current set of candidates under investigation will likely be commercialized and driving substantial revenue growth. Of course, Eli Lilly’s other segments will be yielding more medicines by then, too.

Competition and key risks could take some wind out of its sails

As sunny as Eli Lilly’s future looks, competition is likely to be an ongoing problem over the next five years.

In particular, Novo Nordisk is selling drugs like Ozempic, Rybelsus, and Wegovy that are targeting the exact same growth markets — and it’s currently leading those markets, as it reached them first. Its pipeline has a handful of programs to ensure that it won’t get one-upped in the long term, even if competitors make more effective candidates than its current crop of commercialized therapies.

By late 2028, there will be at least a few additional players fighting for market share. The outcome of the mounting competitive showdown is still undecided. By virtue of its positioning today, Eli Lilly will probably not end up as one of the market’s losers at the end of the decade.

However, competition isn’t the only factor determining how it will fare. It’s possible that the company’s moneymaker medicines like Mounjaro are not as safe as they appear to be right now. Even when drugs are tested in large clinical trials and pass through the regulatory review process without incident, there can still be patients who experience previously undocumented side effects or health risks. Presently, there is no evidence to suggest such an issue is waiting in the wings.

As for the company’s stock, it’s reasonable to expect its share price to be significantly higher in five years. Just don’t expect it to continue to dramatically outperform the market, as it’s been doing since 2019. Its valuation is currently quite high, with a price-to-earnings (P/E) multiple of 106; that means earnings would likely need to grow tremendously to deliver an encore performance for shareholders through 2028.

Nonetheless, if you’re thinking about buying Eli Lilly stock, now is as good of a time as there’s likely to be for a while. Without a major bump in the road, there won’t likely be a discount for buyers anytime soon.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

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