Times are good at Eli Lilly. Wall Street’s insatiable appetite for weight-loss drug stocks looks set to turn the company into the world’s first $1tn drugmaker by market value.
But war stories about gloomier times are never far away when you run a pharmaceutical company. In the late 2000s, Eli Lilly’s share price neared all-time lows as patents of its blockbuster psychiatric drugs — chief among them Prozac, Zyprexa and Cymbalta — expired.
Consolidation was then sweeping the industry, recalls chief executive Dave Ricks, a 25-year veteran, and Eli Lilly was at risk of becoming “the back end of a hyphen to someone else”. The wheel of fortune has since turned. The company’s main problem is building production lines fast enough to meet demand for its blockbuster diabetes and weight-loss drugs Mounjaro and Zepbound, part of a new class of drugs known as GLP-1s.
The drugmaker has invested $20bn in manufacturing facilities over the past four years, and on Wednesday said it was spending a further $4.5bn on building a production facility for drugs in clinical trial in its home state of Indiana. The pool of possible patients is one of the largest of any drug in history: there are more than 100mn US adults with obesity and 1bn people worldwide.
“Everyone has a biomarker in their bathroom, it’s called a scale,” says Ricks, speaking from a production facility under construction on the site of Eli Lilly’s Indianapolis headquarters. “So many people get a benefit, and they get it pretty quickly, and so then there’s a consumer interest cycle that is pretty powerful.”
With the most potent weight-loss shot and a pipeline of 11 experimental treatments, including what is widely expected to be the first approved small molecule GLP-1 pill, Eli Lilly stands to be the biggest winner in a market that is projected to grow to $130bn a year in peak sales by the end of the decade.
But Ricks is far from complacent. He spends much of his time working to boost manufacturing capacity to outcompete rival Novo Nordisk. Meanwhile, Eli Lilly is fighting off competition from copycat weight-loss drugs and other drug developers entering the lucrative field, and coming under increasing pressure from politicians and patients over the price of its treatments.
Investors are also becoming wary over the company’s frothy valuation, which stood at $842bn as of market close on Monday, or 54-fold higher than projected earnings over the next 12 months, a height never reached before in the industry.
“Everybody is jumping blindly on [Eli] Lilly and all these stocks so they will keep grinding up but they are priced for perfection,” says one top-10 shareholder. “If investors get scared about the 10 other players with weight-loss drugs and the prospect of pricing pressure, they could be in trouble.”
But the company hopes to consolidate its position among the top 10 most valuable companies in the US by staying ahead of the competition. For Eli Lilly, this will mean pouring its extraordinary revenues into research and development to prepare for when its weight-loss drugs reach the so-called patent cliff when generic competition arrives, sometime in the mid-2030s.
The tech stocks that compete for the title of most valuable company — the likes of Microsoft, Apple, Nvidia and Google — share a “stickiness with their customers . . . that the pharmaceutical industry in the past has lacked”, says Daniel Skovronsky, Eli Lilly’s chief scientific officer.
The long-term mission for the company is not just to rise to greater heights but to avoid a return to darker times by cultivating some of that consumer loyalty. “Our mission”, adds Skovronsky, “is to get out of that boom and bust cycle of pharma”.
In 2018, after Swiss drugmaker Roche turned down the rights to license a promising GLP-1 pill to treat type 2 diabetes from its sister company Chugai, a rivalry dating back more than a century boiled up once again.
Eli Lilly beat out its Danish competitor Novo Nordisk for the rights to the experimental drug after a short bidding war, paying just $50mn upfront, according to two people familiar with discussions. Novo Nordisk declined to comment.
Skovronsky could not recall whether the pill’s potential as a weight-loss treatment was even discussed at the time of the licensing deal.
But the pill — now known as orforglipron, which looks set to be first small molecule anti-obesity pill if it launches as planned in 2026 — is one of several fronts in which Eli Lilly appears to be outmanoeuvring Novo Nordisk for supremacy in the weight-loss drug market.
“For a century, we’ve competed with [Novo Nordisk] directly or indirectly,” says Ricks. “Competition is good for consumers in that way: it speeds up things because you race, you work harder, we can iterate in ways that produce better products . . . so there has been a sort of leapfrogging.”
In 1923, Eli Lilly was first out of the blocks with a commercial insulin product to treat diabetes, which until then was considered a death sentence. Novo, then a standalone company before its merger with Nordisk, created a longer-lasting version and the first insulin pen.
In 1982, Eli Lilly launched the first synthetic, mass-producible version of human insulin. In 2005, Eli Lilly then created the first GLP-1 drug — a twice-daily injection, but Novo Nordisk would revolutionise the market with the launch of Ozempic in the US in 2017.
Despite Novo Nordisk being first to market, Eli Lilly has benefited from “a second mover advantage” with the launch of its weight-loss medicines, says Rajesh Kumar, head of healthcare equity research at HSBC. “They can see what traps the guy ahead of them is falling into,” he says, allowing them to ramp up manufacturing faster and to invest in next-generation products.
This year, Mounjaro and Zepbound, which are both based on the active ingredient tirzepatide, are set to generate $18.8bn in sales between them, according to analyst consensus estimates — edging closer to Novo Nordisk’s $27bn in projected revenues from Ozempic and Wegovy, despite being on sale for a shorter period of time. Sales from Eli Lilly’s GLP-1 franchise are projected to surpass Novo Nordisk’s by 2027.
If orforglipron launches on schedule in 2026, Eli Lilly would enjoy a two-year monopoly of the weight-loss pill market before rivals caught up. At the same time, the company is also developing retatrutide, a treatment that activates three different gut peptides and in mid-stage trials resulted in 24 per cent body mass reduction, far more dramatic than the effects of any existing treatment.
The company is also racing to prove the added benefits of tirzepatide for knock-on effects of obesity, such as sleep apnoea, cardiovascular risk and chronic kidney disease, helping to ease the path to wider insurance coverage. Medicare, the state-backed healthcare programme mostly for over-65s, only covers weight-loss drugs when a patient is suffering from another comorbidity.
“We’re going to eat the elephant one step at a time here . . . by proving the indications not just to lower weight but for the consequences of that,” says Ricks. “I think in five years we’ll look back and say mostly those diseases can be augmented by changing their weight . . . and the payers will look back and say, ‘Yeh, we should cover [tirzepatide] in all these conditions and the precursor condition which is medical obesity.’”
Beyond its longtime rival, Eli Lilly is also facing competition from other quarters. As many as 16 new obesity drugs could launch by the end of the decade, including from drugmakers AstraZeneca, Pfizer and Amgen, according to PitchBook.
But more imminently, Eli Lilly is fighting back against an array of copycat weight-loss drugs. The US Food and Drug Administration permits compounding pharmacies, which typically prepare customised medication, to reproduce trademarked drugs when there is a shortage, and these have flooded the market.
Ricks argues that there was “no rationality” for tirzepatide to remain on the FDA’s shortage list because of Eli Lilly’s efforts to ramp up supply, adding that compounding presented a risk to patients. “Let’s partner together to solve the production problem, let’s not use this trap door, which exposes Americans to adulterated products with unapproved [active pharmaceutical ingredients].”
With competitors at Eli Lilly’s heels and its key advantage being eroded, investors see warning signs that the company’s valuation may be nearing its peak.
A top-25 shareholder predicts that Eli Lilly will pass the $1tn milestone but says that is “close to the top”. “There’s the inevitable patent cliff, there’s competition and soon there’s going to be a price war to the bottom,” says the investor. “It seems like this is peak enthusiasm for [Eli Lilly].”
If Eli Lilly really wants to escape the pharmaceutical industry’s boom and bust cycle, its research and development team will have to get to work on discovering the next era-defining medicine. The task for Eli Lilly is to determine “what is your next giant pie-in-the-sky thing”, says one investor.
The company is hoping such opportunities may be hidden in the real-world data from the rollout of its anti-obesity medications.
Early signs suggest that the hundreds of thousands of patients prescribed tirzepatide are starting to see other surprising effects from the treatment: a reduction in anxiety and depression symptoms as well as better control over compulsive behaviours such as smoking and drinking, according to Skovronsky.
Eli Lilly has already put the treatments to work against autoimmune diseases, such as psoriatic arthritis, in combination with other medicines, but Skovronsky says that the effects on mental health and addiction “are intriguing enough that we’re considering . . . how to attack the question of whether these drugs can help those kinds of diseases”.
The drugmaker is also considering including people who are not overweight, but are at risk of weight gain, in future trials of its weight-loss pills and other treatments, suggesting it is already searching for ways to expand the weight-loss drug market.
The biggest question for Eli Lilly, however, is what the company will do with the unprecedented windfall from its weight-loss drugs.
Between now and 2030, analysts expect the business to generate $187bn in free cash flow, with which Eli Lilly can do whatever it wants. As one venture capitalist put it: while industry watchers are obsessing over Eli Lilly’s market value, what will be more defining is what Lilly does “once the money comes in the door”.
“Our capacity to spend is going up so we should look at everything but probably not change our principles,” says Ricks, adding that he favoured early-stage R&D bets over big, set-piece acquisitions that provide a bump in revenues but curtail growth.
“When this company’s future was in doubt . . . we made a bet on R&D and we survived that by being inventive,” says Ricks, pointing to how the company persisted with diabetes and obesity research when other pharma groups gave up.
“That’s probably the way we maintain momentum by being inventive,” says Ricks. “We deploy dollars by project, not by some top-down math . . . so that requires us to get into the weeds on each project and get excited about it or not.”
When Merck’s blockbuster cancer immunotherapy drug Keytruda launched in 2014, Skovronsky recalls rushing to catch up and launch Eli Lilly’s own version of the class of drugs known as checkpoint inhibitors. He predicts that many rival drugmakers will miss the next wave of innovation as they try to find a route into the obesity market.
Meanwhile, Eli Lilly will have the breathing room to pursue its next big innovation: now that Kisunla, its treatment for people with early-stage Alzheimer’s, has been approved in the US, it is putting the medicine to work as preventive treatment for the incurable brain disorder.
Skovronsky adds that Eli Lilly, whose previous biggest drug was depression treatment Prozac, is likely to push back into psychiatry. Non-opioid painkillers are also an area of potential growth, as the US continues to search for solutions to the opioid crisis.
Companies “have gotten challenged by investors in the years coming up to the cliff not because the rest of the business isn’t growing through the cliff but because the rest of the business just is uninteresting”, says Jacob Van Naarden, who runs Eli Lilly’s oncology division.
For Eli Lilly, the challenge will be to prove to investors that the rest of its business can be as attractive as its blockbuster GLP-1 drugs. “If you remove the diabetes and obesity businesses, they don’t execute that well,” says one investor. “There’s some risk in just going into new areas, because just like Novo actually they’re really good at this one thing . . . the rest are a mixed bag.”
And the odds are long. Discovering hugely popular medicines like statin Lipitor, autoimmune medicine Humira, Keytruda and now the GLP-1s “happens pretty infrequently and usually not by the same company twice in a row”, says Van Naarden. “Maybe it’s us — that’d be great.”
Data visualisation by Ian Bott, Keith Fray and Patrick Mathurin