Eli Lilly and Company (LLY) has achieved remarkable performance in recent years. This leading healthcare company boasts two outstanding GLP-1 drugs, Zepbound and Mounjaro, used to treat obesity and diabetes respectively, which are in high demand among patients seeking to lose weight and improve their health.
However, Eli Lilly’s growth story extends far beyond this. Improvements in profit margins indicate that the company’s sales are growing at a much faster pace than its expenses, which may suggest that Eli Lilly is producing its drugs more efficiently. Management confirmed this assessment during a recent earnings call, attributing part of the improvement to better production costs.
Of course, Eli Lilly’s margin expansion also faces threats. The company has noted that price reductions realized for some of its products have offset some of the margin gains achieved through improved production costs. This challenge could intensify as more weight-loss drugs enter the market. Nevertheless, there are reasons to believe that Eli Lilly can maintain relatively high profit margins in the medium term, driven by two key factors.
First, Eli Lilly is investing heavily to expand its manufacturing capacity. Since 2020, the company has invested $55 billion in this area. While these investments may drag on profits and margins in the short term, they should ultimately help enhance the company’s manufacturing capabilities and reduce costs, leading to significant economies of scale. Second, Eli Lilly’s investments in artificial intelligence could also have an impact, though not immediately.
Current criticism of Eli Lilly’s stock suggests that its share price may already be too expensive, and future demand could slow. Affected by this, Eli Lilly’s stock has recently underperformed, appearing somewhat sluggish. However, investors should not overlook this healthcare stock, as its CEO believes a catalyst could emerge in the near future.
Eli Lilly CEO Dave Ricks expects that Medicare will cover obesity drugs in the near future. Once that happens, “it will be somewhat of a game-changer.” Currently, many people pay out of pocket for these drugs to save money, but under far-from-ideal economic conditions, if Medicare helps cover the costs, it could drive stronger growth figures for the business. At the same time, patients could become healthier through weight loss and may require less medical care in the future, ultimately benefiting the entire industry. In effect, this would be a win-win situation.
Entering this week, Eli Lilly’s stock has fallen more than 18% since the beginning of 2026, far underperforming the S&P 500, which has declined 7% over the same period. GLP-1 drugs offer many potential benefits beyond weight loss, such as treating sleep apnea and reducing cardiovascular risk. Although Eli Lilly’s stock currently trades at a premium (with a price-to-earnings ratio of 38 times), the company’s significant growth opportunities may still make it an excellent long-term buy.
