So far this month, Eli Lilly (NYSE:LLY) stock has continued to rally.
Hitting yet another new all-time high just a few days ago before backing down, LLY stock is up a total of 24% so far this year. That’s an impressive move for this mega-cap pharma stock, especially during this down year for the overall stock market.
Yet far from the product of speculative frenzy, the market is rightfully bullish about LLY. In recent months, prospects for one of Lilly’s key drug candidates, tirzepatide (marketed as Mounjaro) have become even stronger, as the company pursues regulatory approval for its use as an obesity treatment.
Forget about having merely a “blockbuster” drug in its hands. Take a look at sales forecasts for Mounjaro, and this pharma firm may have a “mega-blockbuster,” on its hands. At least, that’s the takeaway from the latest developments related to this key catalyst for the stock.
| LLY | Eli Lilly | $360.99 |
LLY Stock: The Latest With Mounjaro
Admittedly, since announcing in October that it has obtained Fast Track designation from the Food and Drug Administration (or FDA) for Mounjaro as a treatment for obesity, there has not been another big piece of clinical trial-related news with this drug candidate.
However, another Mounjaro-related development has had a positive impact on the price of LLY stock. As reported by Fierce Pharma on Dec. 6, based on remarks made by the company’s investor relations chief, Lilly is planning a “substantial expansion around the 2025 time period” of its manufacturing capacity.
The reason for this is to meet the anticipated high demand for Mounjaro, as a diabetes treatment and possibly as an obesity treatment. In the process of building two new manufacturing facilities, the company could double its diabetes treatment manufacturing capacity by the end of next year.
But while this news isn’t as game-changing as say, going from having Fast Track designation to having the full go-ahead from the FDA to market this drug in the U.S. to treat obesity, this news could signal that LLY has a strong chance of hitting the high peak annual sales estimates currently out there for Mounjaro.
$25 Billion in Peak Annual Sales?
In the world of pharmaceuticals, a blockbuster drug is any prescription drug that generates annual sales topping $1 billion. A mere $1 billion in annual sales is a drop in the bucket for this company. Estimates call for Eli Lilly to generate around $28.2 billion in revenue this year.
However, as I hinted above, rather than just achieving “blockbuster status,” Mounjaro could achieve “mega-blockbuster” status. Back in September, based on the high likelihood of the above-mentioned label expansion, this drug could eventually generate more than $25 billion in peak annual sales.
This would undoubtedly result in a massive increase in the company’s bottom line. Take this in account, and it’s more than reasonable that the market is giving LLY stock such a high forward earnings multiple at present (41 times estimated 2023 earnings).
Better yet, although LLY’s top catalyst, it’s not as if they aren’t any other potential needle-movers in the pipeline. For example, Eli Lilly’s candidate for treating Alzheimer’s disease, donanemab. Late last month, the company released promising clinical trial data on the experimental drug. There may not be Mounjaro-sized potential with donanemab, but it’s likely to become a “blockbuster,” if approved by the FDA.
The Verdict
Steadily climbing higher, LLY continues to have a lot of momentum behind it. Shares are poised to maintain this momentum into next year, as progress continues Mounjaro and donanemab, and other high-potential candidates in the pipeline.
Sure, valuation-conscious investors may still have some reservations. However, the production expansion plans further backing up arguments that Lilly will knock it out of the park with its aforementioned key candidate.
Chances are, there’s enough at play for shares to maintain a premium valuation, with plenty more room to move higher. While it offers only a modest dividend (forward annual yield of 1.05%), this steady payout will further boost total returns for investors who choose to make this a long-term position.
One of the best growth plays among established pharmaceutical stocks, LLY stock remains at a buy at current prices.
LLY stock earns an A rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.