After massive gains in the past five years on the heels of the weight loss blockbuster Zepbound, Eli Lilly & Co (LLY) stock is, again, testing multiyear lows. The $700 billion pharmaceutical giant, best known for its diabetes and weight loss drugs, faces an obstacle after the Trump administration dropped a Biden administration proposal last week that would have allowed Medicare to cover GLP-1 drugs like Zepbound. With Trump-mania and fearful sentiment gripping world markets, I remain bullish on LLY stock, with recent declines setting up decent entry opportunities at discounted levels.
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To clarify, Medicare will continue to cover GLP-1 drugs for conditions like diabetes but not specifically for obesity treatment unless approved for secondary use like preventing heart attack or stroke. Despite the tough news, analysts remain upbeat on Eli Lilly. Terence Flynn, a Morgan Stanley analyst, sees limited impact on LLY due to regulatory changes. In my bullish view, Zepbound remains positioned to take the lion’s share of the multi-billion dollar obesity market and cement Eli Lilly as a key player in pharma.
Competitive Advantage: Zepbound vs. Wegovy
Eli Lilly’s Zepbound is one of two GLP-1 drugs approved to treat obesity. The other, Wegovy, is marketed by Novo Nordisk (NVO), a global pharmaceutical company in Denmark. However, the two drugs are not the same. Zepbound also targets “GIP,” another gut hormone that aids in weight loss by regulating appetite and satiety. In a recent head-to-head clinical trial, this dual approach led to superior weight loss outcomes (20.2% average weight loss versus just 13.7%) over Wegovy.
Despite being approved over two years after Wegovy’s launch, Zepbound is already competing with its competitor toe-to-toe in the commercial market. Zepbound generated almost $5 billion in revenue in its first full year. Meanwhile, Wegovy, approved in June 2021, brought in around $8 billion in 2024, with expectations for more tempered growth in 2025.
Market Potential and Long-Term Outlook
According to Goldman Sachs, the global obesity market could eclipse $100 billion by 2030. Although several other weight loss drugs are expected to be approved before then, Eli Lilly and Novo Nordisk’s established offerings, alongside decades of diabetes expertise, are expected to keep them ahead of the pack.
In this market, time is of the essence. While safe and effective weight loss can be proved in one or two years, the same cannot be said of cardiovascular outcomes because clinical studies span several years. Critically, insurers require long-term outcome data for these types of drugs. Shedding a few pounds and inches off the waistline isn’t enough.
However, Wegovy has earned a “cardiovascular risk reduction” badge on its label, while, in a similar fashion, Eli Lilly’s Phase 3 trial (SURMOUNT-MMO) will assess Zepbound’s ability to reduce morbidity and mortality for up to five years. The trial’s completion is estimated for 2027. Assuming success, Zepbound, too, will earn the attractive badge.
Meanwhile, Eli Lilly is expanding the market for Zepbound. In December 2024, It became the first drug approved for moderate to severe obstructive sleep apnea. It is also testing Zepbound in other conditions linked to obesity, such as MASH (liver disease), chronic kidney disease, and heart failure.
Affordability Strategy: LillyDirect and Price Reductions
Now that Eli Lilly is past shortages and manufacturing challenges, its focus shifts to access and affordability amid reimbursement hurdles. In January 2024, it launched LillyDirect, which provides home delivery of select Lilly medicines, including Zepbound, through third-party pharmacy dispensing services. The company has been gradually decreasing the prices of its Zepbound vials. A month’s supply of a 10 mg Zepbound pen will run you over $1,000 without insurance. Through LillyDirect, consumers without insurance coverage can get a 10 mg vial for under $600.
Drug companies must outlive their drugs. While Zepbound may become the best-selling drug in history, it won’t have market exclusivity forever. While this event is several years away, smart investors understand that Eli Lilly’s long-term value depends on what comes after Zepbound.
The company’s innovative pipeline, which includes novel treatments for Alzheimer’s disease, cancer, and autoimmune conditions, results from billions of dollars invested annually in research and development (R&D). This creates a flywheel effect that cannot be easily replicated.
Zepbound’s robust growth has benefited Eli Lilly’s earnings and allowed the company to advance its two dozen molecules in late-stage development.
Is Eli Lilly a Buy, Sell, or Hold?
On Wall Street, LLY stock has a Strong Buy consensus rating based on 19 Buy, one Hold, and zero Sell ratings in the past three months. LLY’s average price target of $1,037.13 per share implies ~43% upside potential over the next twelve months.
Earlier this week, Geoff Meacham from Citibank maintained a Buy rating and a price target of $1,190. The analyst highlighted Eli Lilly’s strong growth trajectory and the “potential for expanded coverage despite the recent decision by the HHS not to finalize Medicare coverage.” He, too, believes the HHS decision will have a limited impact on Lilly’s performance.
Widespread insurance coverage for innovative medicines like Zepbound can take years to materialize. However, Wall Street analysts remain confident that accumulating long-term outcomes data will eventually demonstrate, beyond a reasonable doubt, that GLP-1s can deliver healthcare cost savings that justify their high costs.
LLY Buying Opportunity Amid Short-Term Turbulence
Despite the Medicare coverage scare, Eli Lilly remains well-positioned in the rapidly expanding obesity market. The stock’s recent retreat from highs creates a potential entry point for investors, as Eli Lilly’s long-term growth story remains intact. The next few years will likely see expanding insurance coverage, additional indications, and potentially a cardiovascular risk reduction label that could accelerate adoption further.
That said, investors also need to be mindful that much of Eli Lilly’s valuation hinges on this one drug. Any competitive threats or post-marketing safety events for Zepbound could derail the stock’s climb. Until then, I expect Zepbound to generate significant revenues and Eli Lilly’s stock to outperform.