Significant Developments Bring Optimism for Eli Lilly Shareholders
The most sizzling investment area among healthcare investors currently revolves around advancements in weight loss. These advancements are primarily centered around glucagon-like peptide-1 (GLP-1) receptor agonists, which are leading to groundbreaking drugs like Ozempic, Wegovy, Mounjaro, Zepbound, and others. These blockbuster medications are revolutionizing how healthcare is delivered to individuals struggling with diabetes or weight management issues.
Novo Nordisk, a Danish pharmaceutical company, currently dominates the GLP-1 market, with its Ozempic drug leading the charge. However, its chief competitor, Eli Lilly, is not far behind due to surging demand for its Mounjaro and Zepbound formulations.
Here are some significant moves Eli Lilly is making to establish its position in the weight loss market, providing investors with insight into whether the stock is a viable investment opportunity at present:
A $3 billion investment in strength
Although demand for GLP-1 treatments is skyrocketing, balancing supply and demand has posed a challenge. While this issue can be seen as a good problem, companies must address and resolve such discrepancies to maintain their competitive edge. Lacking the ability to meet demand can open the door for competitive disruption.
To tackle this challenge, Eli Lilly acquired a manufacturing facility from Nexus Pharmaceuticals in April. This acquisition was a direct response to the soaring demand for Mounjaro and Zepbound. Earlier this month, Lilly further committed to its manufacturing investment, announcing that it will invest an additional $3 billion to expand the Nexus facility. Lilly's focus on enhancing its manufacturing capabilities will result in increased production of its weight loss medications.
But this is just one of Lilly's noteworthy announcements in recent months.
Playing for the long game
In addition to Novo Nordisk, Eli Lilly faces competition from telemedicine company Hims & Hers Health (HIMS 4.22%). While Hims & Hers does not manufacture its own medications, the company offers compounded versions of high-demand drugs.
Over the past year, Hims & Hers has made a splash in the weight loss market by selling compounded semaglutide, the main active ingredient in Novo Nordisk's Ozempic and Wegovy. It is worth noting that compounded medications do not have FDA approval but meet certain state requirements and safety standards.
The primary advantage of using a compounded medication is that it provides a similar alternative to mainstream treatments at a more affordable price point. In the case of weight loss, patients who cannot afford Ozempic might turn to compounded semaglutide from Hims & Hers.
While this is still a nascent part of Hims' overall business, its entry into the weight loss market has been met with impressive demand trends. With compounded tirzepatide (the primary ingredient in Lilly's Mounjaro and Zepbound) potentially entering the market soon, it's time for Lilly to respond.
In September, Lilly lowered the price for Zepbound and made it clear that the price reduction was aimed at capturing additional market share, particularly from patients opting for non-FDA-approved weight loss products.
Similar to its manufacturing investments, Lilly also seems to be doubling down on its strategy to increase the distribution of its weight loss medications. On Dec. 11, Lilly announced a strategic partnership with direct-to-consumer healthcare application Ro.
According to the announcement, Ro will serve as an additional distribution channel for Lilly, allowing it to reach more customers and further expand its presence in the weight loss market. Through this partnership, Lilly can tap into Ro's customer base and potentially identify new patient needs and cross-sell additional products and services.
Should you invest in Lilly?
Following its third-quarter earnings report on Oct. 30, Lilly stock experienced some volatility, dipping by as much as 14%. As with earnings reports, it is not sufficient to simply review top- and bottom-line financials and compare them to Wall Street expectations. While Lilly reported an earnings miss, one of the main factors contributing to the miss was the mismatch between supply and demand for Zepbound and Mounjaro.
This discrepancy could serve as a blessing in disguise. Although these mismatches are likely to continue in the near term, Lilly is addressing the issue through its continued investments in manufacturing capabilities.
The partnership with Ro represents a near-term catalyst for Lilly's weight loss strategy, while its manufacturing investments represent a long-term opportunity for the company. Overall, I am optimistic about Lilly's long-term prospects.
In light of Eli Lilly's $3 billion investment in expanding its manufacturing facility to meet the soaring demand for its weight loss medications, financial analysts and investors interested in the healthcare sector might consider this as a potential opportunity for profitable investments in the company. With this substantial investment, Lilly aims to increase the production of its popular drugs like Mounjaro and Zepbound, potentially solidifying its position in the GLP-1 market.
Additionally, Eli Lilly's strategic partnership with direct-to-consumer healthcare application Ro could open up new distribution channels, enabling the company to reach more customers and expand its presence in the competitive weight loss market. This combination of short-term catalysts and long-term opportunities might attract investors looking for growth in the healthcare financing sector.
