This Unstoppable Growth Stock Just Delivered More Good News: Time to Buy?

Over the past couple of years, Eli Lilly (NYSE: LLY) has emerged as the leader in the weight loss market. The company's tirzepatide compound, sold under the brand name Zepbound when used for weight management, is now the best-selling medicine in this niche market.

Other drugmakers are looking to get a piece of the pie, given how quickly Zepbound's sales are already growing, and analysts predict a significant increase in demand for anti-obesity medicines. Even with mounting competition, though, Lilly should remain the top player in this area.

Let's look into recent developments for the drugmaker and why its leadership here might have staying power.

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Yet another clinical win

Eli Lilly's Zepbound has been shown to be highly effective in managing weight in patients using it. Still, there are ways for competitors to try to steal market share. For instance, since Zepbound is administered subcutaneously via injection once a week, some drugmakers are developing oral or monthly formulations, each of which could attract a decent number of patients.

Then there is the fact that Zepbound is a dual GLP-1 and GIP agonist. Some pharmaceutical giants are betting that they can achieve greater efficacy over longer periods -- or perhaps similar efficacy but with fewer side effects -- by targeting different hormones. That includes amylin, which helps promote satiety and regulate blood glucose levels. Novo Nordisk has a dual GLP-1 and amylin medicine in phase 3 studies called amycretin, while AbbVie is working on its own amylin-based anti-obesity product.

But Lilly is not to be outdone. It recently reported results from a phase 2 clinical trial for eloralintide, an investigational amylin agonist. The study enrolled 263 overweight or obese patients with at least one other weight-related comorbidity, all of whom were given different doses of eloralintide or a placebo. After 48 weeks, the highest dose of eloralintide led to a 20.1% mean decrease in body weight in patients treated, compared with 0.4% in those in the placebo group.

That's below the mean 24.3% decrease in weight observed (at the highest dose level) over 36 weeks in a phase 1b/2a study for Novo Nordisk's amycretin. Of course, comparing across clinical trials -- especially early- and mid-stage studies -- is always challenging. That's the point, though: We can't say for sure yet which is more effective. Eli Lilly is still in this race.

Eli Lilly hasn't peaked

Eli Lilly has already benefited from its breakthroughs in the weight management market; the company's financial results have been excellent in recent years. The drugmaker's valuation also seems steep, at least at first glance: Its shares are trading at 27 times forward earnings, well above the 17.4 average for healthcare stocks. Some might think that the company's success is already baked into its share price, and it's unlikely to outperform broader equities from here on out. I disagree. Here are two reasons why.

First, Lilly's financial results should remain much stronger than those of the average pharmaceutical giant for the foreseeable future. The company's tirzepatide surpassed Merck's Keytruda as the world's best-selling drug in the third quarter, generating about $10 billion in sales. According to some projections, it could hit sales of almost $62 billion by 2030. That's a significant medium-term tailwind for the company.

Second, newer weight loss medicines will help push sales even higher. Eli Lilly's orforglipron now looks on the fast track to becoming one of the first approved oral GLP-1 weight loss therapies. The drugmaker is also countering its competitors' strategies to take away market share in other ways. Thanks to a partnership with a smaller biotech, Lilly is working on anti-obesity medicines that can be administered less frequently. Its triple agonist, retatrutide, performed well in phase 2 studies and could be yet another major addition to its portfolio in a few years.

So we can expect substantial clinical and regulatory progress in one of the fastest-growing therapeutic areas, where Eli Lilly already dominates. That, in my view, makes its stock more than reasonably valued even at current levels. There is still time to get in on Lilly.

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