Is Eli Lilly Starting an Nvidia-Style Run?

Nvidia offered investors a nearly certain path to gains over the past few years. As the leader in the artificial intelligence (AI) chip market, the company generated explosive revenue growth, and its innovation suggested that this momentum could keep on going over time. As a result, investors piled into the stock, and it rose more than 400% over the past three years.

Pharmaceutical giant Eli Lilly (NYSE: LLY) has a few things in common with this tech giant. First, it's also operating in a high-growth field and one that is set to advance in the years to come: Here, I'm talking about weight loss drugs. This market is on track to reach nearly $100 billion by the end of the decade. Also like Nvidia, Lilly dominates its target market. Lilly holds 60% of the U.S. GLP-1 drug market right now, well surpassing former leader Novo Nordisk. Finally, like Nvidia, Lilly focuses on innovation and expects that to continue driving its leadership -- the company just launched a new weight loss drug and recently reported strong results from clinical trials of a late-stage candidate.

Meanwhile, even Lilly's stock performance has looked like that of Nvidia recently. Lilly shares soared more than 18% in the month of May. Is Eli Lilly starting an Nvidia-style run? Let's find out.

Image source: Getty Images.

Lilly's GLP-1 path

First, let's take a look at Lilly's path to GLP-1 dominance and consider why the stock has taken off recently. Novo Nordisk entered this market first, back in 2017, with Ozempic, which regulators approved for type 2 diabetes. Soon afterward, however, regulators also approved the underlying product, semaglutide, for weight loss under the name Wegovy. And Lilly joined the market with tirzepatide, first approved for type 2 diabetes as Mounjaro and for weight loss as Zepbound.

All of these drugs stimulate hormonal pathways involved in key digestive processes such as appetite control and the regulation of blood sugar levels. Patients self-inject the product on a weekly basis -- and over time, many have lost a significant amount of weight.

Though Novo led the market in its early days, Lilly surged ahead about a year ago. Why the shift? There may be more than one reason. Two in particular could be the stronger performance of Zepbound versus Wegovy in a head-to-head trial, and Lilly's ramp-up of manufacturing and other decisions to ensure availability of its products. For example, Lilly was quick to introduce Zepbound in single-dose vials as an alternative to the injection pen format. This is cheaper and easier to manufacture.

Lilly's $1,000 stock price

As mentioned, over the past month, Lilly stock has taken off, surging past $1,000, and the reason for this may be very clear. Lilly has taken two major steps toward creating a broad weight loss portfolio that could help it maintain its dominance at an important moment -- as the market grows toward $100 billion.

Lilly won approval for Foundayo, its oral weight loss drug, in April, and early trends are promising. Though Novo's oral Wegovy is ahead in terms of prescription numbers, this isn't surprising since that product launched a few months earlier. And just recently, Lilly reported positive phase 3 trial data for retatrutide, a candidate that may help patients who need to lose a significant amount of weight. If retatrutide reaches the finish line, it, along with Lilly's oral and injectable drugs, creates a broad weight loss portfolio. And pipeline innovation continues with other candidates progressing -- this could further build out the portfolio a few years down the road.

Investors may be noticing this and aiming to get in on the opportunity early -- I say "early" because Lilly has high ambitions when it comes to the weight loss market. The company doesn't see it as just a one-drug opportunity, but instead as an opportunity to develop a broad portfolio of products to treat various levels of obesity as well as associated conditions.

All of this means that, yes, Lilly could be starting an Nvidia-style run. And, like the AI chip giant, this pharma company could be on track to deliver many years of revenue gains thanks to its focus on innovation in a high-growth field.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Nvidia. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.