Over the last couple of years, the pharmaceutical sector has captivated investors thanks in large part to novel medications used to treat chronic weight management and diabetes.
While you may be more familiar with brand names such as Ozempic or Wegovy, these drugs are known as glucagon-like peptide-1 (GLP-1) agonists in the medical world. Eli Lilly (LLY -6.55%) has emerged as one of the hottest stocks in the GLP-1 realm -- underscored by its combination of blockbuster treatments, Mounjaro and Zepbound.
While Lilly's success with GLP-1 drugs is certainly impressive, I have my eyes on another area of the company this year. Let's dig into what Lilly's business looks like beyond weight loss treatments, and explore which of the company's tailwinds has me most excited.
Eli Lilly has more to offer than just GLP-1 drugs
As it stands today, Mounjaro is Lilly's largest source of revenue while Zepbound is the company's fastest-growing business -- generating nearly $5 billion of sales during its first full calendar year on the market in 2024. Given this stat line, it's not all that surprising that Lilly's stock price tends to move based on investor sentiment around the GLP-1 operation.
However, Lilly has several other market-leading medications that are used to treat cancer, plaque psoriasis, eczema, and other conditions. But to me, one of the biggest hidden opportunities inside Lilly's ecosystem is Kisunla. Kisunla was approved by the Food and Drug Administration (FDA) last summer and represents Lilly's entrance into treating Alzheimer's disease.
Image source: Getty Images.
Why am I optimistic about Kisunla?
According to data from Market.us, the global Alzheimer's disease market is estimated to be worth roughly $8 billion. However, industry trends suggest that the market size for Alzheimer's disease will grow almost fourfold over the next several years -- reaching a size of $31 billion by 2033. Yet despite this rapid growth, Alzheimer's disease remains a fairly fragmented market when it comes to widely available and approved treatments.
Today, one of the more popular treatments for combatting Alzheimer's disease is Leqembi -- a drug developed by Biogen and Eisai. Of note, Eisai previously experienced a great deal of success with a different Alzheimer's drug, called Aricept, back in the early and mid-2000s before patent expiries.
Leqembi has only been FDA-approved since July 2023 and officially launched later that year in December. Although its history as a commercially available treatment is limited, business results have been mixed so far.
According to Eisai's financials, Leqembi has generated 29.6 billion yen ($198 million) through the nine-month period April through December 2024. To add some color to these figures, Eisai actually revised its full-year 2024 forecast for Leqembi to 42.5 billion yen -- down from the initial forecast of 56.5 billion yen. The company cited delays in the sales launch in the U.S. for the newly protracted financial target.
Eisai's underwhelming launch for Leqembi is a big deal, as the U.S. is the company's largest source of growth for its Alzheimer's disease business. To me, the lackluster launch in the U.S. represents an opportunity for Lilly to pounce with Kisunla.
The combination of a large total addressable market (TAM), limited competition, and a rough start for Leqembi could all work in Lilly's favor as the company begins to scale Kisunla this year.
Is Eli Lilly stock a buy right now?
Right now, Lilly trades at a forward price to earnings (P/E) multiple of 36. As the chart below illustrates, Lilly's current forward P/E is roughly 40% lower today than it was just a year ago.
LLY PE Ratio (Forward) data by YCharts
I find the normalization in Lilly's valuation a bit confusing. The only thing I can really think of that could be driving the sell-off is the rise of generic GLP-1 drugs, which are not approved by the FDA. Despite their popularity, Lilly is competing with sellers of generic GLP-1 drugs by doubling down on its own manufacturing capabilities as well as competing more directly on price against these knock-offs.
I see the valuation compression trends above as a compelling opportunity to take advantage of some depressed price action right now. I'm optimistic that Lilly's growth will be supported by much more than Mounjaro and Zepbound for years to come. In 2025, I think investors should pay particularly close attention to Kisunla's launch and how Lilly's ambitions in treating Alzheimer's disease take shape.
