With the endorsement of the "miracle weight-loss drug" and strong financial performance, Eli Lilly has replaced Tesla and joined the ranks of the "Big Seven" in the US stock market, attracting widespread attention.

Can Eli Lilly replace Tesla as one of the "Seven Sisters" of the US stock market?

On February 6th, before the US stock market opened, Eli Lilly released its fourth-quarter earnings report. The data showed that Eli Lilly's fourth-quarter revenue greatly exceeded expectations. In the report, Eli Lilly pointed out that the significant increase in revenue was driven by a 28% year-on-year increase in sales of new products, mainly led by the "miracle weight-loss drug" Zepbound and the blockbuster blood sugar-lowering drug Mounjaro.

Some analysts believe that due to the strong demand for Eli Lilly's "miracle weight-loss drug," research breakthroughs in fatty liver disease MASH, the expected lifting of supply restrictions, strong capital barriers, and high market expectations, the pharmaceutical giant Eli Lilly has sufficient reasons to replace Tesla and become one of the "Seven Sisters" of the US stock market.

Due to the tremendous success of these two drugs, Eli Lilly's market value surpassed Tesla's last month. As of now, Eli Lilly's market value of $670.4 billion still exceeds Tesla's market value of $576.64 billion.

At the same time, analysts predict that among Eli Lilly's many drugs, just Zepbound and Mounjaro alone could bring in over $40 billion in annual revenue for Eli Lilly later in this decade. The weight-loss drug market is in a rapid growth phase, similar to the early stage of electric vehicle development.

"Miracle weight-loss drug" boosts Eli Lilly's revenue beyond expectations, dispelling some investor concerns

Eli Lilly's outstanding performance has dispelled some investor concerns.

Previously, although the market had high expectations for Eli Lilly, some analysts were concerned that these optimistic expectations would be difficult to achieve, leading to a decline in Eli Lilly's stock price. However, Tuesday's earnings report from Eli Lilly showed that the company's star products, Zepbound and Mounjaro, experienced a surge in sales due to strong market demand, driving significant financial growth for the company:

The blockbuster weight-loss drug Zepbound, which was approved for listing in November last year, contributed $175 million in revenue in the fourth quarter.

The blockbuster blood sugar-lowering drug Mounjaro generated revenue of $2.25 billion, a 56.3% increase compared to the previous quarter, accounting for 24% of Eli Lilly's total revenue.

Eli Lilly's fourth-quarter revenue reached $9.35 billion, surpassing the market's expected $8.96 billion, with a year-on-year growth rate of 28%.

Analysts believe that Eli Lilly's performance in the fourth quarter not only met but even exceeded market expectations. The company's strong performance has dispelled investor concerns and brought immense confidence to investors. Not only that, Eli Lilly is confident about its future performance. Looking ahead to 2024, Eli Lilly expects revenue to reach $40.4 billion to $41.6 billion, surpassing market expectations of $39.52 billion. This means that the two GLP-1 drugs, Mounjaro and Zepbound, are expected to contribute at least $11 billion in sales, exceeding market expectations.

Breakthrough in MASH Treatment

In addition to breakthroughs in the treatment of diabetes and obesity, Eli Lilly mentioned during the earnings conference call that the heavyweight GLP-1 drug Tirzepatide has shown excellent efficacy in Phase II clinical trials for metabolic dysfunction-associated fatty liver disease (MASH).

MASH is a non-alcoholic fatty liver disease associated with metabolic disorders, which can lead to liver inflammation and damage, and may progress to cirrhosis or liver cancer in severe cases. Among patients receiving the highest dose of Tirzepatide treatment, 73.9% of patients had MASH symptoms eliminated and liver fibrosis did not worsen after one year, compared to a proportion of about 12.6% in the placebo group.

Public data shows that an estimated 3% to 5% of adults in the United States have MASH, and approximately 115 million people worldwide have MASH. Analysts believe that against the backdrop of a huge clinical demand for MASH treatment but a lack of effective treatment methods, the success of Tirzepatide in MASH treatment research will open up new growth opportunities for Eli Lilly.

After Eli Lilly announced this research result, the stock price of Madrigal Pharmaceuticals, a major competitor in the MASH field, fell by 11.28%. Investors are concerned about Madrigal Pharmaceuticals' leading position in the MASH treatment market, and the market is worried that Eli Lilly's research results on Tirzepatide may change the competitive landscape of the MASH treatment drug market.

Supply bottlenecks expected to be resolved, heavy capital investment also hinders competitors' entry

In terms of the supply chain, if Eli Lilly's supply bottlenecks are resolved, it will bring new performance growth to the company.

According to JPMorgan's data, the average weekly prescription volume of Wegovy in the United States has increased by 148% year-on-year this year, while the average weekly prescription volume of Ozempic has increased by 43%. Pharmaceutical companies have had to expand their production capacity to meet the explosive growth of the weight loss and diabetes markets.

Analysts believe that Eli Lilly and its competitor Novo Nordisk are currently in a similar position in the field of obesity and diabetes treatment, similar to Tesla's position in the early days of the electric vehicle market, that is, rapid business growth with a lack of competitors in the short term, and supply is the main limiting factor. However, with the increase in manufacturing capacity and the launch of more products, the market competitive advantage of Eli Lilly and Novo Nordisk, known as the "GLP-1 dual giants," may be further consolidated. In addition, increasing production capacity requires years of time and capital expenditure of over billions of dollars. For example, Novo Holdings, the controlling shareholder of Novo Nordisk, spent $16.5 billion to acquire Catalent, one of the largest pharmaceutical outsourcing manufacturers, with three major bases resold to Novo Nordisk for $11 billion to accelerate the production of Wegovy and Ozempic. This heavy investment in assets has hindered some companies that want to enter the competition, such as Amgen and Roche (companies developing similar drugs).

Analysts point out that both companies have a strong product pipeline, including pills under development and more potent injectable drugs. They are able to continuously launch new treatment options to meet market demand, and their growth potential and competitive barriers still appear to be solid in the coming years.

High market expectations

In terms of market valuation, Eli Lilly has a similar experience to Tesla. Both are favored by investors due to their dominant positions in their respective markets and huge growth potential, resulting in valuations far exceeding those of other companies in the same industry. This phenomenon is partly attributed to "popular culture hype," where widespread social attention and optimistic expectations for future growth prospects drive up their stock prices.

According to FactSet data, Tesla's forward P/E ratio for the next 12 months is 57 times, while Eli Lilly's P/E ratio is 55 times. In comparison, traditional automaker Ford has a P/E ratio of 6.6 times, and Johnson & Johnson has a P/E ratio of 15 times. Even high-growth tech leader Amazon has a P/E ratio of only 41 times.