Investing in pharmaceutical companies with robust product pipelines and diversified revenue streams is often considered a strategy with potential. Eli Lilly (LLY) recently reported outstanding third-quarter results, with revenue surging 54% year-over-year to $17.6 billion and adjusted earnings per share skyrocketing 495% to $7.02. The company also raised its 2025 performance guidance, projecting revenue to reach $63 to $65 billion and raising its EPS range to $23 to $23.70. Its stock price has increased by 17.5% year-to-date in 2025, slightly outperforming the broader market. However, the core driver behind the stock’s rise of over 500% in the past five years primarily stems from its breakthrough developments in the GLP-1 drug segment.
Although Eli Lilly boasts a diversified product portfolio across oncology, neuroscience, and immunology, the recent explosive performance is primarily driven by its diabetes and weight loss treatments. In the rapidly growing U.S. market for incretin mimetics, Eli Lilly holds a 57.9% share of prescriptions. Its GLP-1 drug tirzepatide is marketed under two brands: Zepbound (for weight management) and Mounjaro (for type 2 diabetes). In the third quarter, Zepbound’s U.S. prescription volume tripled year-over-year, capturing 63% of the branded weight-loss drug market. Mounjaro became the most prescribed drug for type 2 diabetes in the U.S., holding a 45% market share, and its international sales grew by 56% due to launches in 55 countries. Notably, approximately 75% of the drug’s revenue outside the U.S. comes from out-of-pocket payments by individuals, highlighting significant clinical demand and market potential.
Eli Lilly is continuously expanding its GLP-1 product line. The oral GLP-1 candidate, orforglipron, has completed Phase III clinical trials, demonstrating superior performance in blood glucose control and weight reduction compared to the highest approved dose of oral semaglutide. The company plans to submit a New Drug Application to the U.S. Food and Drug Administration and expects to launch the drug in the U.S. in 2026. If successfully approved, the oral formulation could significantly enhance patient convenience and has the potential to become a new growth driver.
The pharmaceutical industry is characterized by high investment, stringent regulation, and patent expiration timelines. Eli Lilly’s GLP-1 drugs enjoy patent protection until the mid-next decade, but they face the risk of a “patent cliff” post-expiry, where generic competition could lead to a significant revenue decline. Furthermore, over 50% of the company’s sales rely on GLP-1 class drugs, and competitors are actively developing similar therapies. If more attractive alternative treatments emerge in the market, the company’s revenue could be impacted even before patent expiration.
Various indicators suggest the market has already priced in high expectations for Eli Lilly. Its dividend yield is approximately 0.7%, below the pharmaceutical industry average, and valuation multiples such as price-to-sales and price-to-earnings ratios are above their five-year averages. This indicates that Wall Street has largely incorporated the positive factors into the stock price. Any performance shortfalls or a deteriorating competitive environment could trigger a stock adjustment. While Eli Lilly has achieved remarkable success with its GLP-1 drugs, the current valuation level implies accumulating downside risks, requiring investors to carefully weigh future returns against potential risks.
