CVS Health Just Announced Fantastic News to Eli Lilly Stock Investors

Despite Eli Lilly's (NYSE: LLY) dominance in the weight management market, the company has encountered several obstacles in this field, including spotty insurance coverage for its anti-obesity medicine, Zepbound. If Eli Lilly could make headway in that area, it could boost the already fast-growing sales of this medicine. That's why recent news from CVS Health (NYSE: CVS) was so important. Let's look deeper into it.

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CVS Health does a 180

On May 28, CVS Caremark, the pharmacy benefits manager (PBM) under CVS Health's umbrella, announced it would start covering Zepbound on Oct. 1. This news is especially important, as CVS had previously removed the medicine from its formulary. So, this is quite the reversal. Further, CVS Health will also cover Eli Lilly's new GLP-1 pill, Foundayo, effective June 1.

These developments allowed Eli Lilly to catch up to its biggest competitor, Novo Nordisk, whose competing subcutaneous and oral weight loss medicines were already covered by CVS Caremark. Also, as Eli Lilly noted, this decision means the three largest PBMs in the U.S. will cover Zepbound and Foundayo. CVS's decision will help more patients access these medicines at reasonable prices. The expanded access may also help Eli Lilly fend off the threat posed by some telemedicine companies that have built a business model around offering cheaper, knockoff versions of Zepbound.

Is Eli Lilly stock a buy?

Can Eli Lilly continue riding the weight loss tailwind over the next few years, even as competition intensifies? Yes, it can. The drugmaker's coverage progress and early success with Foundayo -- which was only approved in April -- highlight that the anti-obesity market is far from having peaked. Some 80% of Foundayo's patients had never taken GLP-1s before, perhaps because they didn't like injections.

Eli Lilly's broad portfolio can help address the needs of many others who are still sitting on the sidelines. Meanwhile, the company's revenue and earnings are growing much faster than those of its similarly sized peers and continue to impress Wall Street. In the first quarter, Eli Lilly's sales jumped by 56% year over year to $19.8 billion, while its adjusted net earnings per share soared to $8.55, up 156% from the year-ago period.

Further, Eli Lilly has a meaningful lineup and pipeline beyond its core diabetes and weight loss products. Over the next five years, the company should ramp up sales of non-GLP-1 drugs while launching several new ones. Some might argue that, although Eli Lilly is performing well, its shares are far too expensive. They are trading at 29.3x forward earnings, versus an average of 16.9x for healthcare stocks. But Eli Lilly has earned a premium given its fantastic results and strong pipeline. That's why the stock remains attractive at current levels.

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