Eli Lilly Has Been on an Acquisition Spree. How Much Could Its Latest Deals Boost the Stock?

Eli Lilly's (NYSE: LLY) success in the GLP-1 weight-loss space highlights one of the biggest risks it faces right now. And it helps explain why the company leading the GLP-1 race is working so hard to acquire smaller drugmakers to broaden its drug pipeline. The truth is, Eli Lilly's latest deals probably won't boost its stock right now, but they could be the foundation that builds the pharmaceutical giant's future. Here's what you need to know.

What does Eli Lilly do?

If you look at Eli Lilly's second-quarter revenues, you come away with a very clear picture of the pharmaceutical company's business. Mounjaro, Zepbound, and Foundayo account for nearly two-thirds of the company's top line. That's a huge number when you consider that all of these drugs are targeted at the same health issue: weight loss. But Eli Lilly isn't really a weight-loss company; it is a drug maker. It just happens that its weight-loss drugs have become incredibly important products.

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What's interesting is that Eli Lilly wasn't the first to market with a weight-loss drug in the emerging GLP-1 space. The first company was Novo Nordisk (NYSE: NVO), with Wegovy. But Novo Nordisk struggled to keep up with demand, and Eli Lilly's Mounjaro and Zepbound shots appear to be more effective than Wegovy shots. Eli Lilly very quickly took the lead.

That's important to remember because it highlights the very real threat of new products in the pharmaceutical space displacing existing ones. Healthcare is an intensely competitive sector driven by innovation. Just because Eli Lilly is on top today does not mean it will remain there forever. Notably, Novo Nordisk beat Eli Lilly to market with a GLP-1 pill, and other companies, such as Pfizer (NYSE: PFE), are working on weight-loss drugs of their own. Eli Lilly is still the GLP-1 leader, but it knows it has to be prepared for the day when that's no longer the case.

Eli Lilly's dominance was always going to end

The interesting thing here is that Eli Lilly's GLP-1 drugs could remain the leading option, and the company would still see its leading position come to an end. That's because drugs have limited patent protection, with competitors allowed to produce generic versions of successful drugs after a set number of years. This is just how the drug sector works. Eli Lilly knows this and has been using the profits from its highly successful GLP-1 drugs to invest for the future.

Most recently, it agreed to acquire Merida Biosciences, a biotechnology company focused on the autoimmune and allergy spaces. The all-cash deal could cost as much as $2.875 billion if Merida Biosciences hits contractual development milestones. Right now, however, this deal isn't all that important to Eli Lilly's sales and earnings. But that doesn't mean it isn't important.

Merida Biosciences is just one of many acquisitions Eli Lilly has made over the last year or so. It has also acquired or agreed to acquire AtaiBeckley (NASDAQ: ATAI), which operates in the mental health space; Centessa Pharmaceuticals, which focuses on sleep-wake disorders; and Curevo, LimmaTech Biologics, and Vaccine Company, all of which operate in the infectious disease space. And those are just the most recent examples; there are more.

Eli Lilly's future is in its acquisitions

No single deal is all that significant. However, taken together, they show that Eli Lilly is attempting to broaden its therapeutic footprint as it prepares for the day when GLP-1 weight-loss drugs are no longer the revenue and earnings drivers they are today. You should be paying as much attention to Eli Lilly's acquisition spree as you do to its GLP-1 drugs. The impact won't be felt today, but these deals are what will, eventually, drive the company's future.

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