This is Huge News For Eli Lilly Investors

Over the last couple of years, pharmaceutical giant Eli Lilly (LLY 0.34%) has made a splash in the red-hot weight loss space. The company’s path-breaking innovation in using glucagon-like peptide-1 (GLP-1) agonists, Mounjaro and Zepbound, are just two of the company’s blockbuster drugs helping pave the way in diabetes and obesity care, respectively.

Lilly’s success in the weight loss realm isn’t without hiccups, though.  The company has experienced turbulence in meeting rising demand for its GLP-1 medications. As a result, some patients are opting for lower-cost alternatives, that potentially could stifle Lilly’s near-term growth.

Nevertheless, I see a couple of important progress updates that could serve as nice tailwinds for Lilly in the long run. Below, I’ll detail some moves the company is making and explain how these investments should help it supercharge its momentum.

A $4.5 billion investment

Lilly has been solidly investing in research and development (R&D) throughout 2024. In April, the company announced the acquisition of a new manufacturing facility from Nexus Pharmaceuticals. The rationale behind the deal is to increase production to help meet surging demand for its GLP-1 medications.

This month, the company announced that it’s building a $4.5 billion research facility called the Lilly Medicine Foundry. The idea behind this investment is to bridge Lilly’s clinical trial pipeline with enhanced manufacturing capabilities.

Here’s why these investments are important. The facility acquired from Nexus isn’t expected to be up and running until the end of next year; meanwhile, the new Foundry site is planned to open in 2027.

As an investor in Eli Lilly stock, I’m encouraged by the company’s forward thinking. Not only is management making moves to bolster manufacturing of medications that are currently in demand, but it’s also thinking about how to better position the company as it pursues development in areas outside of its weight loss pipeline.

Image source: Getty Images.

High demand? No problem

Medications can experience shortages for a variety of reasons. Lilly’s weight loss treatments have been in the Drug Shortages Database maintained by the Food and Drug Administration (FDA) thanks to mismatches between supply output and demand trends.

As I mentioned above, limited access to Mounjaro and Zepbound has inspired some patients to look for other solutions. Compounded GLP-1 offerings, which are not approved by the FDA, have risen in popularity as of late.

While these dynamics have caused some headwinds for Lilly, I see some recent news out of the FDA as a positive sign: The agency recently removed Mounjaro and Zepbound from the shortages list.

The obvious positive is that Lilly should be able to better compete against providers of compounded GLP-1 agonists.

However, Lilly has also demonstrated its ability to allocate capital efficiently to augment its manufacturing capabilities and address short-term challenges.

The bottom line

Through June 30, Mounjaro and Zepbound have generated $6.6 billion in sales for Lilly. That’s more than both of these drugs contributed in all of 2023.

It’s important to note that Zepbound was not approved until November of last year. But it’s tough to deny that weight loss appears to be Lilly’s next big growth opportunity. When you factor in that each of these GLP-1 treatments faced supply constraints for quite some time, this level of growth becomes even more impressive.

I think Lilly is poised for much further growth and penetration in the weight loss space, and see the company’s new Foundry facility as an opportunity to expand its reach across many other pockets of the healthcare landscape.

Given the company’s continued investments in R&D, clinical research, and manufacturing, I think Lilly isn’t just maneuvering around short-term hiccups, but is laying the groundwork for long-term success. For these reasons, I see the stock as a no-brainer for investors with a long-run time horizon.