Eli Lilly: Increasing Our Fair Value Estimate on Robust Outlook for Weight-Loss and Diabetes Drugs

Following a review of the weight-loss drug market, we are increasing Eli Lilly’s LLY fair value estimate to $368 from $289 per share largely based on increased projections for diabetes and weight loss drugs Mounjaro and orforglipron. We now expect Mounjaro holds peak annual sales potential above $25 billion and orforglipron will reach almost $10 billion. Mounjaro entered the market in 2022 for diabetes treatment, and we expect a label expansion into obesity treatment in 2023 based on industry-leading efficacy. Additionally, we expect orforglipron to reach the market in 2026 and develop into a major drug based on the convenience of oral administration. Orforglipron’s efficacy looks positioned to match Novo Nordisk’s competitive drugs Wegovy and potentially high-dose oral semaglutide, and as a non-peptide agonist, the drug doesn’t require any special delivery technology. While Mounjaro and orforglipron still need to gain approvals in weight loss followed by payer coverage, we believe the outlook for the drugs is increasingly strong. The strong outlook for Mounjaro and orforglipron should help support high returns on capital while also generating the capital needed to develop next-generation drugs, a key pillar in Lilly’s wide moat.