Lilly becomes first drugmaker to hit $1 trillion valuation on weight-loss demand

By Mrinalika Roy

(Reuters) -Eli Lilly hit $1 trillion in market value on Friday, making it the first drugmaker to enter the exclusive club dominated by tech giants and underscoring its rise as a weight-loss powerhouse.

A more than 35% rally in the company's stock this year has largely been driven by the explosive growth of the weight-loss drug market.

In the last two years as new, highly effective obesity treatments hit the market, the category has emerged as one of the most lucrative segments in healthcare.

Sales of Lilly's tirzepatide, marketed as Mounjaro for type 2 diabetes and Zepbound for obesity, have also topped Merck's Keytruda as the world's best-selling drug.

Novo Nordisk had the early lead in the space, but Mounjaro and Zepbound have surged in popularity and helped the company eclipse its rival in prescriptions.

Lilly pulled ahead in part because Novo's Wegovy launch in 2021 was hampered by supply shortages, giving Lilly room to gain ground. The U.S. company's drugs have also shown stronger clinical efficacy, and Lilly has been faster to scale up manufacturing and expand distribution.

The company's shares, which briefly hit a record high, were trading nearly 1% higher at $1,051.

Lilly now trades at one of the richest valuations in big pharma, at about 50 times its anticipated earnings over the next 12 months, according to LSEG data, reflecting investors' bets that demand for obesity drugs will remain strong.

Shares have also far outpaced the broader U.S. equity market. Since the launch of Zepbound in late 2023, Lilly has gained more than 75%, compared with an over 50% rise in the S&P 500 over the same period.

In the latest reported quarter, Lilly posted combined revenue of more than $10.09 billion from its obesity and diabetes portfolio, accounting for more than half of its total revenue of $17.6 billion.

"The current valuation points to investor confidence in the longer-term durability of the company's metabolic health franchise. It also suggests that investors prefer Lilly over Novo in the obesity arms race," said Evan Seigerman, analyst at BMO Capital Markets.

In October, Lilly lifted its annual revenue forecast by more than $2 billion at the midpoint on surging global demand for its obesity and diabetes drugs.

Wall Street estimates the weight-loss drug market to be worth $150 billion by 2030, with Lilly and Novo together controlling the majority of projected global sales.

Investors are now focused on Lilly's oral obesity drug, orforglipron, which is expected to be approved early next year.

In a note last week, Citi analysts said the latest generation of GLP-1 drugs have already been a "sales phenomenon", and orforglipron is poised to benefit from the "inroads made by its injectable predecessors."

SUSTAINING THE MOMENTUM

Lilly is set to benefit from a deal with the Trump administration and its planned billions in investment to boost U.S. production.

Analysts have said the pricing deal with the White House may weigh on near-term revenue but significantly expands access, adding as many as 40 million potential U.S. candidates for obesity treatment.

Lilly is starting to resemble the "Magnificent Seven" again, said James Shin, director of Biopharma Equity Research at Deutsche Bank, referring to the tech heavyweights including Nvidia and Microsoft that have powered much of the market's returns this year.

At one point, investors viewed it as part of that elite group, but after some disappointing headlines and earnings, it slipped out of favor.

Now, however, it can possibly pose as an alternative for investors, especially given recent concerns and weakness in some AI stocks, he added.

Still, analysts and investors are watching if Lilly can sustain its current growth as prices of Mounjaro and Zepbound come under pressure, and whether its scale-up plans, along with its diversified pipeline and dealmaking will offset a potential margin squeeze.

(Reporting by Christy Santhosh and Mrinalika Roy in Bengaluru; Editing by Sriraj Kalluvila)