Eli Lilly Q1 - Weight-loss shines

Last Thursday, Eli Lilly's share price dropped 11%. The fall came after they reported mixed first-quarter numbers, and also an announcement from CVS that they were going to stock Novo Nordisk's Wegovy ahead of Eli Lilly's Zepbound. The share price drop was unfortunate, but it's still trading higher than it was in the middle of April.

Looking at the results, the all-important GLP-1 weight-loss drugs posted very impressive sales growth. Mounjaro, which is specifically for diabetes but used for weight loss, grew sales by 113% to $3.8 billion. Two years ago, the drug only had sales of $568 million - amazing growth. Zepbound, which has the same active ingredient as Mounjaro but is specifically marketed for weight loss, saw sales jump from $517 million to $2.3 billion over the last twelve months.

Thanks to these ramp-ups, Eli Lilly reported revenue growth of 45% to $12.7 billion, and EPS growth of 30%. Unfortunately, the company set its forward guidance lower than Wall Street expected. When a company grows this quickly, it is very tough to make short-term forecasts. What really matters is the long-term growth trajectory, and that is still intact.

We prefer Eli Lilly to Novo Nordisk because its drug is more effective, and people are willing to pay higher prices to drop more weight. In clinical trials, after 72 weeks, Tirzepatide (Mounjaro/ Zepbound) resulted in around 20% weight loss versus Semaglutide (Ozempic/Wegovy) at only 14%.

Looking ahead, Eli Lilly also has an oral pill which is at least as effective as Semaglutide. Not needing a needle is a game-changer for many people.

We are excited about Eli Lilly's future prospects, but their rapid growth doesn't come cheap. The share trades at a forward P/E multiple of 40, which is very high for a drug company. Two years ago though, it was trading at a P/E of 80, so all their revenue growth is already translating to a quick P/E unwind. It will be a bumpy ride for shareholders, but we think it's worth it in the long run.