This Drug Stock Has Crushed the S&P 500 Over the Last Decade

Sales of Eli Lilly's (NYSE: LLY) Mounjaro and Zepbound have been nothing short of amazing. The two GLP-1 drugs saw sales increases of 99% and 175%, respectively, in 2025. The company is at the forefront of this still-developing drug niche. No wonder Eli Lilly's stock is up more than 1,100% over the past decade, handily beating the S&P 500 index's (SNPINDEX: ^GSPC) advance of "just" 230%. Don't rush out and buy Eli Lilly; there are some risks you need to consider first.

Eli Lilly is expensive

The S&P 500 index is trading near all-time highs, and its average price-to-earnings ratio is around 26x. The average drug stock has a P/E of 23x. Eli Lilly's P/E ratio is 39x. To be fair, a recent drawdown has pushed the pharmaceutical giant's P/E below its 56x five-year average, so it is cheaper than it has been. But it still remains expensive on an absolute basis and relative to other drug companies.

Image source: Getty Images.

Even after a sell-off in Eli Lilly's stock, investors still appear to have very high expectations for the future. There are some problems to consider on that front. For example, drugs have a limited time period of patent protection. Once the patents on Mounjaro and Zepbound expire, generics are likely to emerge, dramatically reducing Eli Lilly's revenues from these two GLP-1 drugs. So even in the best-case scenario, Eli Lilly's current dominance in the weight-loss category will end.

Competition is fierce in the GLP-1 space

Even beyond Eli Lilly's two GLP-1 drugs, there are potential problems. The pharmaceutical sector is highly competitive. For example, Novo Nordisk (NYSE: NVO) beat Eli Lilly to market with a GLP-1 pill and it has seen material demand from customers. Pfizer (NYSE: PFE) is working on a long acting version of a GLP-1 weight-loss drug, as well. There's no guarantee that Eli Lilly can continue to maintain its lead in the fast developing weight-loss niche.

Notably, even Eli Lilly recognizes the risks it faces. That's why it has been using the windfall from its GLP-1 success to acquire companies with promising drugs in other areas. That's the right thing to do, but there's no guarantee that the drugs Eli Lilly is adding to its pipeline will pan out as hoped. In fact, it isn't at all uncommon for drugs to fall short of expectations.

Eli Lilly crushed the market, but now it's expensive

Wall Street, myopically focused on the company's GLP-1 success, may not fully recognize the risks ahead for Eli Lilly. That's not to suggest the company runs a bad business or is doing anything wrong. The problem is that even a good business can be a bad investment if you overpay for it.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.