The pharmaceutical sector is a difficult sector. Developing new therapies costs hundreds of thousands of dollars, sometimes even more. Many never reach the market, despite significant amounts invested by drug manufacturers. Many of those that do earn approval ultimately fall short of sales expectations. However, sometimes some drug therapies pay for several times the money invested in their development.
Analysts think this is the kind Eli Lilly (NYSE: LLY) contains tirzepatide, the active ingredient in the weight loss drug Zepbound and the obesity treatment Mounjaro. Tirzepatide has so far lived up to the high expectations it brings. It recently produced more positive results from late-stage studies. Let's take a look at what this could mean for investors.
A new label expansion in the offing
Tirzepatide first received approval for the treatment of type 2 diabetes about two years ago. Last year it won a new indication for obesity. Now Eli Lilly is focusing its new crown jewel on obstructive sleep apnea (OSA). Patients with OSA may have difficulty breathing properly during sleep because their throat muscles contract and block the airways. If left untreated, the condition can contribute to other serious health problems, including several heart problems.
According to Eli Lilly, although 80 million adults in the US have OSA, the condition is dangerously underdiagnosed, with approximately 85% of cases going untreated. Eli Lilly recently released positive results from two Phase 3 studies of tirzepatide in patients with OSA and obesity. The pharmaceutical giant reported that the drug led to about 30 episodes of hypopnea or apnea (where breathing is reduced or completely stopped, respectively) per hour less than a placebo. This gives Eli Lilly another major approval for tirzepatide.
Dazzling sales potential
How much will tirzepatide generate in peak revenue? That depends on various factors. After the drug is approved for diabetes and obesity, it still needs label expansion to realize its full potential. So far, so good. Some analysts initially predicted peak sales of $25 billion for the drug. But recent developments show that Eli Lilly could surpass even that astonishing number. The drug generated sales of more than $5 billion last year – its first full year on the market.
The new indication for the treatment of obesity expired in November 2023. Since then, tirzepatide has suffered from shortages at pharmacies, a clear sign that demand is far exceeding supply. Other analysts now believe the therapy could reach $34 billion in sales 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 certain: the short answer to the question, “How much will tirzepatide generate in peak revenue?” is much.”
What does this all mean for investors?
Some may worry that they have missed the boat. Eli Lilly shares are up more than 500% in the past five years. This year they are up by more than 20%. How much upside potential remains for the stock? The short answer to that question is also 'a lot'. Even beyond tirzepatide, Eli Lilly has a full line of drugs that should drive sales 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 been growing rapidly in recent years. Eli Lilly's payouts have increased 101.6% over the past five years. It's hard to find fault with this stock, but here's one: Approval of potential Alzheimer's disease drug donanemab is being delayed by US regulators, who need more time to complete clinical trials. studies that Eli Lilly used to support the stock. approval of the therapy.
But even without donanemab in its range, Eli Lilly's prospects remain bright. This issue is nothing for a company to worry about given its existing lineup and pipeline: Eli Lilly is a great buy.
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Good luck 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 one disclosure policy.
Eli Lilly just announced more good news: time to buy? was originally published by The Motley Fool
