Eli Lilly (LLY): The New King of Pharma

Eli Lilly’s (LLY) Q3 earnings revealed something extraordinary – 42% revenue growth excluding divestitures.

That’s unheard of for a company worth over $500 billion.

The driver? Mounjaro and Zepbound – two groundbreaking medications that are reshaping how we treat diabetes and obesity.

Financial pros can’t get enough, with LLY searches outpacing all other pharmaceutical companies according to our TrackStar data.

But the story goes far beyond just two breakthrough drugs.

Eli Lilly’s Business

Seven decades after introducing the first commercially available insulin, Eli Lilly has evolved from a diabetes specialist into a biotechnology powerhouse rewriting medical textbooks.

The company’s portfolio spans diabetes, obesity, oncology, immunology, and neurodegeneration, serving millions of patients across more than 120 countries.

Lilly segments its business into the following areas:

• Cardiometabolic Health (65% of revenues) – Includes breakthrough medications Mounjaro, Zepbound, Trulicity, and Jardiance
• Oncology (19% of revenues) – Led by Verzenio and other cancer treatments
• Immunology (10% of revenues) – Features Taltz and other autoimmune therapies
• Neuroscience (3% of revenues) – Including Emgality and newly approved Alzheimer’s treatment Kisunla
• Other (3% of revenues) – Legacy products and other medicines

Q3 2024 showed remarkable growth with revenue increasing 20% to $11.4 billion, driven by volume growth from Mounjaro and Zepbound.

The company’s transformation extends beyond just financials.

Lilly recently announced a $4.5 billion investment in the Lilly Medicine Foundry in Indiana – the first facility combining research and manufacturing to increase clinical trial medicine capacity.

Strategic initiatives include expanding manufacturing capacity globally with a $1.8 billion investment in Ireland facilities and opening the Lilly Seaport Innovation Center focused on genetic medicines.

Financials

Source: Stock Analysis

Lilly’s financial performance has been nothing short of stellar. Revenue grew 27.4% year-over-year while maintaining an industry-leading 80.9% gross margin.

Operating income more than doubled to $10.2 billion in the trailing twelve months compared to $6.6 billion in 2023.

The company generated $6.0 billion in operating cash flow over the past nine months while investing heavily in research and development, which increased 13% to $2.7 billion in Q3 alone.

While the balance sheet carries $31.1 billion in debt, this is offset by strong cash generation and $3.4 billion in cash on hand.

Valuation

Source: Seeking Alpha

Lilly commands premium valuations across every metric. The stock trades at 62.7x forward earnings compared to 15.4x for Pfizer (PFE) and 36.5x for AbbVie (ABBV).

Even on an EV/EBITDA basis, Lilly trades at 46.1x forward estimates versus 8.1x for Pfizer and 14.4x for AbbVie.

However, the premium reflects Lilly’s superior growth trajectory and market position.

Growth

Source: Seeking Alpha

This is where Lilly truly shines. Revenue growth of 27.4% year-over-year dwarfs its peers, with Amgen next closest at 21.3%.

Looking forward, analysts expect 27.1% growth compared to declines at Pfizer and minimal growth at AbbVie and Johnson & Johnson (JNJ).

The three-year revenue CAGR of 13.8% demonstrates consistent execution rather than just recent success.

Profitability

Source: Seeking Alpha

Lilly leads the industry with an 80.9% gross margin and 36.5% EBIT margin.

The company’s 20.5% net income margin tops all peers except Johnson & Johnson, while generating an impressive 65.3% return on equity.

Only the negative free cash flow margin raises concerns, though this reflects heavy investment in future growth rather than operational issues.

Our Opinion 9/10

Eli Lilly has positioned itself at the forefront of multiple massive markets, including diabetes, obesity, and Alzheimer’s disease.

The premium valuation is justified by industry-leading growth rates and margins coupled with a deep pipeline of potential blockbusters.

While near-term performance may see volatility due to high expectations, Lilly’s long-term trajectory appears firmly upward as it reshapes modern medicine.

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