Eli Lilly and Company (LLY) has achieved remarkable success in the market with its GLP-1 drugs, but long-term investors should carefully evaluate the potential risks behind its high valuation before buying its stock.
Eli Lilly’s growth story is driven almost single-handedly by its GLP-1 drugs. In 2025, the company’s Mounjaro saw sales grow by 99%, while Zepbound achieved an even more astonishing growth rate of 175%. In contrast, another drug with separately disclosed sales grew by only 8% for the year. Overall, nearly all of Eli Lilly’s 45% sales growth in 2025 came from Mounjaro and Zepbound. In fact, these two drugs already accounted for 56% of the company’s total revenue last year.
GLP-1 weight-loss drugs are a highly anticipated emerging drug class, and Eli Lilly has become a dominant player in the industry by leveraging its strengths in this field. However, this success has been fully reflected in its stock price. Currently, Eli Lilly’s price-to-earnings (P/E) ratio stands at about 40 times, compared to the S&P 500’s P/E ratio of 28 times and the pharmaceutical industry average of just over 9 times. Such a high valuation means that if the company loses its industry-leading position for any reason, investors may quickly sell off its shares, putting pressure on its valuation.
Despite its current brilliance, Eli Lilly’s GLP-1 business is destined to face challenges. Wall Street tends to extend current trends too far into the future, which is likely the rationale behind Eli Lilly’s current high valuation. Notably, the company is not taking its GLP-1 sales for granted; instead, it is using this substantial revenue to invest in new drugs through internal research and development as well as acquisitions.
However, in a highly complex, strictly regulated, and fiercely competitive industry, it remains uncertain whether Eli Lilly can develop successful new drugs in a timely manner. The company’s exclusive sales period for Mounjaro and Zepbound is limited; after patent protection expires, generic competition will significantly reduce its revenue. Meanwhile, other healthcare companies are also actively positioning themselves. For instance, Novo Nordisk (NVO) has already launched an oral formulation of a GLP-1 drug, and Pfizer (PFE) is developing a next-generation GLP-1 drug with a longer duration of action and lower dosing frequency, which could offer advantages if approved.
Eli Lilly has a diversified pharmaceutical product pipeline, with particular strengths in areas such as diabetes, oncology, and neuroscience. Its well-known drugs include Humalog, Trulicity, and Mounjaro for diabetes, as well as oncology drugs like Verzenio and Taltz. Its GLP-1 products (Mounjaro and Zepbound) both use tirzepatide as the active ingredient, used for treating type 2 diabetes and chronic weight management, respectively. Additionally, the company is developing an investigational once-daily oral drug candidate, orforglipron, for treating type 2 diabetes and obesity.
From an operational perspective, Eli Lilly is currently performing strongly and is leveraging its existing success to lay the groundwork for the future, which is undoubtedly an ideal strategy for a pharmaceutical company. However, as value investing guru Benjamin Graham said, paying too high a price for an excellent company can turn it into a poor investment. Eli Lilly’s current valuation sits at a concerningly high level, constituting a core risk for investors with a long-term perspective.
