Is It Too Late to Buy Eli Lilly?

Eli Lilly (NYSE: LLY) stock has been winning big when it comes to earnings and stock performance in recent years. And this has a lot to do with the company's leadership in a type of drug that's taken the world by storm: GLP-1 drugs for weight loss. Lilly dominates the market, and its drugs have been bringing in blockbuster revenue.

With the obesity drug market on track to reach nearly $100 billion by the end of the decade, the success story may be far from over. Still, Lilly stock has climbed 400% over the past five years and now trades for more than $1,200. Is it too late to get in on shares of the pharma giant? Let's find out.

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Lilly's story so far

Before we talk about the stock's valuation and the company's long-term prospects, here's a look at what's happened so far. Lilly sells a broad range of drugs across treatment areas, and these have driven earnings higher over time. Like many other pharma companies, Lilly offers investors a certain sense of security since patients need their treatments in any economic situation -- and this supports revenue during any environment.

On top of this, over the past few years, Lilly has also offered investors significant growth, and this is due to the company's weight loss portfolio. At the heart of it is tirzepatide, a dual GLP-1/GIP receptor agonist that Lilly sells under the name Mounjaro for type 2 diabetes and as Zepbound for weight loss. In the recent quarter, these products brought in a total of more than $12 billion in sales, helping push Lilly to a total sales gain of 56%.

GLP-1 drugs have become incredibly popular because they're easy to self-administer by injection on a weekly basis, and they've helped people safely and quickly lose weight. This type of drug acts on hormonal pathways involved in digestion, and therefore helps the body manage insulin levels and appetite. GLP-1s act on one hormonal pathway, while dual GLP-1/GIPs act on two.

60% of the GLP-1 market

Novo Nordisk competes with Lilly in this market and originally was the market leader. But over the past year, Lilly progressed and now holds 60% of the U.S. market and 53% of the international one. Both companies recently released oral GLP-1 drugs -- the first of this class in pill format -- and uptake of these has been strong.

At the moment, these two companies dominate, but competition could be on the horizon as other pharma companies and biotech players are studying weight loss candidates. One to note is Viking Therapeutics, which has a phase 3 trial ongoing for its candidate in injectable format and aims to start a phase 3 trial for the oral format before the end of the year. If all goes smoothly, Viking could be among the next to join this valuable market. So Lilly may face increasing competition, though I wouldn't expect a smaller company like Viking to unseat the pharma giant. The good news is that demand is so high for weight loss drugs that there's room for more than just a player or two to succeed.

Lilly's long-term prospects

Now, let's consider Lilly's long-term prospects. The idea that there's room for competitors and that Lilly still may maintain its dominance is positive. It's also important to note that Lilly's oral weight loss drug, Foundayo, launched just recently, so it's in the early days of its growth story.

On top of this, Lilly has a strong weight loss drug pipeline, with a very promising candidate in phase 3 studies. This is retatrutide, which acts on three hormonal pathways involved in weight loss and has demonstrated its ability to help people who need to lose a significant amount of weight. Retatrutide delivered strong phase 3 results, and the company plans to share more phase 3 data later in the year.

All of this is reason to be optimistic about Lilly's prospects. But what about valuation? Lilly isn't dirt cheap, but it's less expensive than it was in recent years -- when revenue levels were lower.

So, is it too late to buy Lilly after its gains in recent years? Not at all. The company's weight loss portfolio is driving growth, and the pipeline could reinforce this well into the future. Meanwhile, the stock looks reasonably priced at today's level, making now a great time to buy.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.