Will Eli Lilly Be the First $2 Trillion Healthcare Stock? 3 Catalysts That Could Get It There.

Last year, Eli Lilly (NYSE: LLY) made history when it became the first healthcare company to reach a market cap of $1 trillion. However, the stock hasn’t performed that well since then. The drugmaker’s value has dropped to $920 billion as of writing. Could Eli Lilly bounce back, cross the $1 trillion mark once again, and beat its healthcare peers to a $2 trillion valuation? The company may be able to do so, provided several things go its way.

Image source: The Motley Fool.

Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »

1. The most important growth driver

Getting to a $2 trillion market cap from Eli Lilly’s current levels would require a compound annual growth rate of about 11.7% over the next seven years. That’s no easy feat, but if Eli Lilly can pull it off, it will likely be due in large part to its work in the weight loss market. Eli Lilly is now the leader in this field, but it faces competition that will intensify over the next few years.

Even so, the company has a deep pipeline of candidates in weight loss. And if it can make significant clinical progress, particularly outside its most famous or popular candidates -- like the triple agonist retatrutide -- Eli Lilly would show that, despite mounting competition, it can maintain its lead in this fast-growing area, and that could jolt the company’s share price.

Consider two of Eli Lilly’s investigational anti-obesity therapies. First, there is eloralintide, a candidate that mimics the action of the amylin hormone, which helps regulate satiety and blood sugar. Eloralintide, unlike Eli Lilly’s currently approved drugs, doesn't target the GLP-1 hormone. Eli Lilly is exploring this new angle because eloralintide has shown the potential to improve tolerability. That means fewer or less severe side effects.

This is one of the selling points of some medicines in development that aim to eat Eli Lilly’s lunch in weight management, including Pfizer’s MET-097i. But if Eli Lilly can develop a highly effective weight loss drug with a better safety and tolerability profile than its current candidates, it will fend off that challenge just fine.

Eli Lilly is also working on a therapy called bimagrumab that could help patients preserve muscle mass while losing weight. Again, other drugmakers, like Regeneron, are exploring similar options. However, if Eli Lilly's bimagrumab proves successful, the company could strengthen its portfolio and solidify its market share.

2. Progress elsewhere could make an impact

Eli Lilly has significantly expanded its pipeline, including through acquisitions, in recent years. The company is seeking to diversify its portfolio of approved medicines and, perhaps, decrease its exposure to its core therapeutic area. Significant breakthroughs in other fields could drive the share price higher, just as Eli Lilly’s clinical wins in Alzheimer’s disease (AD) -- culminating in the approval of Kisunla -- jolted the stock, even amid much more important developments in the company’s weight loss portfolio. Eli Lilly could make more progress in the AD market.

The company is developing such products as remternetug, which, like Kisunla, helps clear amyloid plaque (which some experts believe is linked to AD). Some data from clinical trials suggest that remternetug may clear plaque better than the already approved Kisunla. Remternetug is currently in phase 3 studies. Positive results could be a catalyst for the stock. Outside of that, Eli Lilly has exciting candidates in oncology, immunology, pain management, and more. The company can demonstrate it isn’t a one-trick pony through breakthroughs in these areas, which could help the company's performance over the medium term.

3. Will Eli Lilly’s AI bet pay off?

Eli Lilly built the most powerful artificial intelligence (AI) supercomputer in the pharmaceutical industry in partnership with Nvidia. Using AI to develop drugs could help the company speed up the process, potentially enabling products to reach the market faster, while cutting costs. Investors shouldn’t expect AI to completely transform Eli Lilly’s business overnight, but even relatively small productivity gains over the next few years could have a meaningful impact on the company’s business. Investors should carefully monitor Eli Lilly’s AI progress. And if the company can show that it is having the intended effect on its operations, that too could drive the stock price higher.

Is the stock a buy?

Even if Eli Lilly doesn’t check every single one of those boxes, it is well-positioned to be the first company to reach $2 trillion in market value. For one, it is closer to that goal. It remains the largest healthcare stock. Also, many of its similarly-sized competitors lack its growth potential. And even looking beyond the next seven years, when Eli Lilly may (or may not) get to a $2 trillion valuation, the stock looks attractive. Eli Lilly’s dominance in the weight-loss market and its vast pipeline elsewhere should enable it to deliver strong financial results for a long time. And that’s before we consider other things, including Eli Lilly's strong dividend program -- the company has more than doubled its payouts over the past five years. For all those reasons, the stock could deliver strong returns over the long run.

Prosper Junior Bakiny has positions in Eli Lilly and Nvidia. The Motley Fool has positions in and recommends Nvidia, Pfizer, and Regeneron Pharmaceuticals. The Motley Fool has a disclosure policy.