Eli Lilly Earnings: Strong Weight-Loss Drug Sales Expand Margins

Key Morningstar Metrics for Eli Lilly

• Fair Value Estimate: $540.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Eli Lilly’s Earnings

We are raising our fair value estimate of Eli Lilly LLY to $540 per share from $500 following its stronger-than-anticipated first-quarter results. In particular, pricing drove 10 percentage points of the 26% top-line growth seen in the quarter, which is expanding gross margins faster than we predicted. We believe the strong pricing power of the cardiometabolic drug Mounjaro supported a major part of the pricing gains. While Lilly expects a deceleration in these gains in the second half of the year as discounts related to saving cards annualize, the robust pricing power showcases the strength of the firm’s wide moat.

Sales of cardiometabolic GLP-1 and related drugs (Mounjaro, Trulicity, and Zepbound) remain the key to Lilly’s growth, representing over 40% of total sales and posting almost 50% growth in the quarter. Given the strong efficacy of Mounjaro (diabetes) and Zepbound (weight loss), we forecast them to rapidly grow and reach peak annual sales of over $60 billion. We expect additional indications in sleep apnea (positive data in the first quarter), heart failure (data in 2024-25), and renal disease (2026) to support the robust outlook. We also anticipate that positive morality data for the drugs in diabetes (2025) and obesity (2027) will reinforce their strong positioning.

We believe Lilly will partly elevate capacity constraints for Mounjaro and Zepbound in the second half of the year, and the firm expects to increase the drugs’ production by 50% by year-end. With demand outstripping supply, we think Lilly will sell what it can produce. We believe the strong demand, supply constraints, and lack of significant competition outside of Novo Nordisk NVO lets the firm secure strong pricing, driving sales and margins higher.

The remaining parts of Lilly are performing well. Its third-largest drug, Verzenio (breast cancer), grew 40% as the adjuvant setting approval gained traction. Still, we expect deceleration, as Novartis’ NVS Kisqali will likely gain an adjuvant approval later in the year.