Eli Lilly just secured a huge win, and it’s not related to the weight loss industry.
Pharmaceutical powerhouse Eli Lilly (LLY 0.09%) is having a terrific 2024. Shares have gained 58% so far this year, handily outperforming both the S&P 500 and Nasdaq Composite indexes.
Much of the share price appreciation can be attributed to Lilly’s success in the diabetes and obesity care markets thanks to its blockbuster glucagon-like peptide-1 (GLP-1) agonists, Mounjaro and Zepbound. Moreover, Lilly made headlines back in July as the company’s Alzheimer’s drug, donanemab, received approval from the Food and Drug Administration (FDA).
About a month ago, Lilly secured another big win that I think is being overshadowed by the company’s success in other areas of the healthcare realm. Below, I’m going to break down Lilly’s latest milestone and explain why I see now as a great opportunity to scoop up shares.
Lilly’s latest win
Back in September, Lilly received FDA approval for its atopic dermatitis medication Ebglyss. Atopic dermatitis is more commonly referred to as eczema.
Eczema is generally treated with topical medications such as creams, ointments, or gels. For some patients, topical solutions are suboptimal as symptoms such as dry skin and itchiness continue lingering.
Ebglyss differs from topical ointments because it is an injectable. The medication is specifically marketed for patients with moderate-to-severe eczema who are not able to fully treat their symptoms with topical prescriptions.
Image source: Getty Images.
A $31 billion opportunity
According to Lilly’s announcement regarding Ebglyss, there are 16.5 million adults with eczema just in the U.S. Moreover, roughly 40% of this cohort experiences “moderate-to-severe symptoms like itchiness, dry and scaly skin, discoloration and rashes, which can lead to more scratching that may cause skin to crack and bleed”.
To put some numbers on the eczema treatment opportunity, Precedence Research estimates that the global total addressable market (TAM) will reach $31.4 billion by 2034 — up from $14.7 billion today. Additionally, Precedence’s report suggests that North America is the largest market for eczema and could reach $8.1 billion by the middle of next decade.
Is Eli Lilly a good stock to buy right now?
The chart below illustrates the price-to-earnings (P/E) ratio for Eli Lilly over the last six months.
LLY PE Ratio data by YCharts.
Right off the bat, I’ll admit that a P/E multiple of 113 is not cheap.
However, there are some trends from the chart above that I think are worth calling out and studying a bit further. Notice that Lilly’s P/E ratio began to fall between July and August.
At a company-specific level, some of the sell-off can be traced to rising fears that Lilly’s dominance in weight loss will begin to decelerate should new products from competitors come to market. Additionally, some in the political arena have also taken issue with Lilly’s pricing protocols for Mounjaro and Zepbound.
From a wider standpoint, the markets in general experienced some brutal selling activity over the summer, and Lilly’s price action was impacted by these moves as well.
And yet over the last month or so, Lilly’s P/E has rebounded back to where it was about six months ago. I find this dynamic peculiar because Lilly is a much different enterprise today than just several months back.
The company now has opportunities across Alzheimer’s disease, eczema, and even artificial intelligence (AI). So, while Lilly stock isn’t trading at a steal by any means, I think the stock is potentially underpriced considering the massive opportunities outside of weight management that the company has.
Lilly’s eczema approval looks like yet another stepping stone as it continues to build one of the most prolific pharmaceutical operations on the market. I see the stock as a compelling buy for long-term investors and believe that Lilly’s growth is just getting started.