Eli Lilly Stock: Next Stop $2,000?

It's been a volatile year for Eli Lilly (NYSE: LLY). The company's shares trended lower through the end of April, dropping well below $900. However, the drugmaker's first-quarter update, released on April 30, jolted the stock. Eli Lilly has been on a bit of a run over the past two weeks, with its shares climbing above $1,000, as of this writing. Could the pharmaceutical leader keep the momentum going and eventually reach $2,000 per share anytime soon?

Trouble in paradise?

Eli Lilly's work in diabetes and weight loss is doing most of the heavy lifting right now. The company's financial results have been outstanding thanks to its dominance in the anti-obesity market. But within the next few years, more weight management medicines will enter the market. Here are several that investors should watch out for. First, Novo Nordisk -- Eli Lilly's biggest rival -- has already requested approval for its next-gen therapy, CagriSema, which could launch by the end of the year, pending approval. Novo Nordisk is also running phase 3 studies for a candidate called Amycretin.

Image source: The Motley Fool.

Amgen is another company working on a promising weight-loss medicine, MariTide, which is undergoing pivotal studies. MariTide has an advantage: It could be administered once a month, while Eli Lilly's Zepbound is taken weekly. There is Viking Therapeutics' VK-2375, another phase 3 asset, and Roche is advancing its own candidate, CT-388, into phase 3 studies. Even assuming a 50% success rate -- and considering this list is not exhaustive -- it's reasonable to predict that we could have a handful of additional weight-loss medicines on the market within the next five years.

That could pressure Eli Lilly and disrupt its pricing power. However, Eli Lilly has its own late-stage candidates, some of which have shown best-in-class potential. Retatrutide is the most notable. It delivered a 28.7% mean weight loss in a 68-week phase 3 study, which is much better than what Eli Lilly's current crown jewel and market leader, Zepbound, did in similar trials. Eli Lilly's pipeline also features mazdutide, a medicine already approved in China.

Even with more competition, Eli Lilly looks likely to stay ahead of the pack and remain the biggest winner in the fast-growing weight-loss market.

Beyond weight management

One key reason Eli Lilly could perform well even as new anti-obesity medicines challenge its own is that it isn't just a weight-loss stock. In the first quarter, the company posted strong sales growth from products in other fields, including oncology, immunology, and neuroscience.

Eli Lilly has doubled down on its efforts in these fields in recent years through strategic acquisitions that have expanded its pipeline. The company could make meaningful progress in these areas over the next few years that could jolt its stock price. There is another aspect of Eli Lilly's business worth considering: the company is exploring the use of artificial intelligence (AI) to improve the drug development process. The pharmaceutical giant built the industry's most powerful supercomputer with the assistance of Nvidia.

According to some research, AI could help cut the drug discovery process by one to two years. That may not sound like a lot, but this stage can account for up to 35% of drug development costs. Shortening it by a year while reducing the expenses pharmaceutical companies incur here could have a massive impact on a drugmaker like Eli Lilly, which has dozens of products in development. The company would bring drugs to market more cheaply and quickly, boosting profits and margins. It would also have more money to pour into R&D as a result.

It remains unclear whether Eli Lilly will achieve these goals in the next few years. But the company's AI-related work is worth monitoring closely, as it could unlock significant value for shareholders.

When might Eli Lilly reach $2,000?

Eli Lilly is trading at 26.3x forward earnings, versus the average of 16.6x for the healthcare sector. Some might argue that Eli Lilly's success is already baked into the stock, leaving the company little room for error over the medium term. My view is that Eli Lilly is worth the premium. Although there will be clinical setbacks -- like with every drugmaker on planet earth -- the company is still well-positioned, given its deep pipeline in weight management and elsewhere, as well as its AI-related efforts. The stock could potentially double in the next six years, registering a compound annual growth rate of 12.25% over this period. That would require sustained execution, but Eli Lilly appears capable of achieving that level of growth.

Prosper Junior Bakiny has positions in Eli Lilly, Novo Nordisk, Nvidia, and Viking Therapeutics. The Motley Fool has positions in and recommends Amgen, Eli Lilly, and Nvidia. The Motley Fool recommends Novo Nordisk, Roche Holding AG, and Viking Therapeutics. The Motley Fool has a disclosure policy.