Eli Lilly Just Made a $2.8 Billion Bet That Goes Beyond GLP-1 Drugs

Eli Lilly (NYSE: LLY) has garnered plenty of headlines in recent years, especially for its work in the weight loss market, where it is a leader. The company's Zepbound is the world's best-selling anti-obesity medicine and continues to post incredible sales growth. As demand for weight-loss drugs continues to expand -- some analysts think the market will reach $150 billion by the early 2030s -- Eli Lilly could continue to ride that tailwind and post strong returns over the medium-term.

However, there is a lot going on at the company beyond the success of its GLP-1 portfolio. Eli Lilly has been on an acquisition spree to expand and diversify its lineup. And the company recently announced another acquisition worth noting. Here's what investors need to know.

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Eli Lilly boosts its neuroscience business

On July 16, Eli Lilly announced that it would acquire AtaiBeckley (NASDAQ: ATAI), a clinical-stage biotech, for about $2.8 billion in cash (excluding potential milestone payments). AtaiBeckley develops medicines for mental health diseases. The drugmaker's leading candidate, BPL-003, is an investigational drug for treatment-resistant depression. As Eli Lilly points out, there are millions of patients living with untreated (or poorly treated) depression, so there is a vast opportunity here. BPL-003 posted strong results in phase 2 studies.

Thanks to this and other candidates in AtaiBeckley's pipeline, Eli Lilly will boost its neuroscience portfolio, which is already pretty strong. Eli Lilly has several other candidates in this area that it inherited from recent acquisitions. In June, the company bought Centessa Pharmaceuticals for $6.3 billion in cash (excluding milestone payments). Centessa's lead asset, cleminorexton, is being investigated across narcolepsy and idiopathic hypersomnia.

Eli Lilly's approved lineup also features Kisunla, a medicine for Alzheimer's disease (AD). This therapy should eventually generate peak sales of well over $1 billion, given the large unmet need in AD. Overall, Eli Lilly's neuroscience business looks strong and could become a key growth driver down the line.

Eli Lilly isn't a one-trick pony

Eli Lilly has made many other interesting acquisitions that have helped expand its pipeline into promising areas, including pain management, oncology, immunology, and infectious diseases. That's important for the company's future. Here is why. Although Eli Lilly currently dominates the weight management market, which, together with its diabetes portfolio, accounts for the lion's share of its sales, competition in these fields will intensify significantly over the next few years.

The drugmaker may remain the leader regardless, given that it arguably has one of the deepest anti-obesity and diabetes pipelines in the pharmaceutical industry. Still, increased competition may put pressure on the company's pricing power, leading to lower revenue from its products in these fields. New medicines in other areas will help the company deal with this issue.

The company's significantly expanded pipeline grants it multiple "shots on goal," or the flexibility to develop blockbusters across multiple fields, even with the occasional clinical or regulatory setback. Eli Lilly's acquisition of AtaiBeckley may not pan out -- only time will tell. But at least some of the company's pipeline products will. The company should have a much stronger approved portfolio within a few years.

Why the stock is a buy

Even though there will eventually be more competition in weight loss, Eli Lilly should profit from the soaring demand for medicines in this niche at least through the end of this decade. Zepbound's novel mechanism of action -- unlike other GLP-1s, it activates two hormone receptors instead of just one -- strong efficacy, and potential across other indications such as obstructive sleep apnea (OSA), where it is already approved, all grant the medicine exceptional mid-term prospects. Then there is the fact that at least one of Eli Lilly's candidates, retatrutide, could open up yet another corner of this growing market.

Retatrutide also has a novel mechanism of action that could help it gain an edge over even Zepbound and target patients with very high BMIs (Body Mass Indexes), while potentially earning indications across OSA, metabolic-dysfunction-associated steatotic liver disease, back pain, and more. Eli Lilly's work in this field, by itself, makes the stock attractive. Once we factor in the company's deep pipeline in other areas and strong dividend program, the pharmaceutical leader looks like a table-pounding buy.

Prosper Junior Bakiny has positions in Eli Lilly. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool has a disclosure policy.