Pharmaceutical giant Eli Lilly (NYSE: LLY) is having a moment right now. Over the last two years the company has made a splash in the weight loss space thanks to its one-two punch of blockbuster diabetes and obesity care medications, Mounjaro and Zepbound.
The excitement surrounding the weight loss market has fueled a stock-buying frenzy, propelling Lilly to a market capitalization of roughly $720 billion — making it the most valuable pharmaceutical company in the world.
At first glance, you might think you’ve missed out and the train has already left the station. However, a recent announcement from the company suggests that notion is far from reality.
Below, I’m going to break down a major update Lilly shared with investors earlier this month, and make the case for why now could still be an incredibly lucrative time to scoop up shares.
On Dec. 9, Lilly’s board of directors approved a $15 billion stock buyback program. CFO Lucas Montarce said of the share buyback:
As Lilly has entered into a period of rapid growth, our capital allocation priorities remain the same. We will continue to focus on supporting new launches, expanding our manufacturing capacity, and advancing our pipeline through research and development and business development. However, given the strong growth profile of the company, we’re also increasing the amount of capital we plan to return to shareholders. We expect to execute this program over the next three years.
Below, I’m going to expand on Montarce’s comments and explain why I think this buyback is so pivotal for investors.
While there are many reasons a company may decide to repurchase shares, one of the principal motives can be that management feels that the stock is undervalued. To me, Montarce’s quote implies that management sees a lot of upside for Lilly, given the company’s expansive pipeline and growth opportunities.
Let’s take a look at some of Lilly’s biggest opportunities, and assess how these could impact the company in both the short term and the long term.
As I alluded to above, Lilly’s primary tailwinds in the weight loss market come from its glucagon-like peptide-1 (GLP-1) receptor agonists Mounjaro and Zepbound. And while each of these medications has generated billions of dollars in sales over the last couple of years, there are several reasons to believe Lilly has yet to scratch the surface in diabetes care and chronic weight management.
A couple of months ago, Lilly made some changes to Zepbound’s pricing to make it more affordable and accessible to patients who had been opting for GLP-1 alternatives in the form of compounded medications, which are not approved by the Food and Drug Administration (FDA). Earlier this month, Lilly took this effort a step further by partnering with Ro, a direct-to-consumer (D2C) telemedicine platform that will also now serve as a distributor for Zepbound.
