Back on August 18, I posted a buy for Eli Lilly (LLY). I said the stock was over-valued but would likely get more so. At the time Lilly shares were 46% over-valued according to Morningstar.
Yesterday November 8, the stock was 68% over-valued. And even after a plunge 4.49% today, November 9, the shares are still up 8.2% from August 18. (They were up 13.3% before today’s drop.) For comparison, in the same period the Standard & Poor’s 500 is down 0.5%.
Why did I recommend Lilly then and why is the stock up since then, and why do I still recommend it today?
The answer is Mounjaro, the company’s diabetes treatment. Mounjaro, a tirzepatide injection drug, has been used for treating Type II diabetes.(Remember the “injection” part of that description, it’s very important.)
On Wednesday the Food and Drug Administration on Wednesday approved Mounjaro from Lilly, as an obesity drug, after clinical trials showed that patients lost an average of 18% of their body weight. The drug will be marketed as Zepbound in the obesity market. This puts Lilly into direct competition with the wildly popular Wegovy weight-loss drug from Novo Nordisk (NVO). (Novo Nidisk markets its drug for the diabetes market as Ozempic. Wegovy produced an average 15% weight loss in its clinical trials.) The F.D.A. approved Zepbound for people with obesity and for those who are overweight and have at least one obesity-related condition. Obesity affects 100 million American adults.
The potential payoff from an effective weight-loss drug are huge. Obesity affects 100 million American adults. And the payoff from a successful diabetes drug it nothing to sneeze at either. Were i the midst of a global diabetes epidemic. The IDF Diabetes Atlas (2021) reports that as od 2021 10.5% of the global adult population (20-79 years) has diabetes, with almost half unaware that they are living with the condition. By 2045, IDF projections show that 1 in 8 adults, approximately 783 million, will be living with diabetes, an increase of 46%.
But the real payoff will come with a pill form of the weight-loss/diabetes drugs that are currently only available as injections. Making injectable drugs is complicated and challenging. Pills are simpler and cheaper, which could improve the supply problem that has affected patients that use Ozempic and Wegovy. It is estimated that by 2030, a billion people in the world will have obesity. “All the companies in the world cannot make that many injections,” Dr. Daniel Skovronsky, the chief scientific and medical officer at Eli Lilly, told the New York Times. The pill forms of these drugs are currently in clinical trials.
Right now Novo Nordisk is unable to produce enough Wegovy to satisfy the huge demand for the drug. The Lilly approval should reduce the shortages. but a pill would be better yet.
Eli Lilly has been a member of my Jubak Picks Portfolio since November 28, 2022. The shares were up 72.7% from that date though the close on November 9.