Eli Lilly: 4 Reasons Investors Shouldn’t Miss This Opportunity
Eli Lilly & Co. (NYSE: LLY) is a major global pharmaceutical company in the medical sector. The company made headlines with its dominant GLP-1 drug, Tirzepatide, sold as Mounjaro for type 2 diabetes and Zepbound for obesity. While there are many potential contenders in clinical trials, the current GLP-1 market is a duopoly that Eli Lilly dominates with Novo Nordisk A/S (NYSE: NVO), maker of Semaglutide sold under Ozempic and Wegovy brands. Additionally, Lilly has a robust pipeline led by its recently FDA-approved and launched treatment for Alzheimer's disease, Donanemab, sold as Kisunla. Mirikizumab is a treatment for Crohn's disease, and Lebrikizumab is for atopic dermatitis and asthma. Pirtobrutinab is a next-generation BTK inhibitor.
Record sales of its GLP-1 drugs drove Lilly’s stock to a new all-time high of $972.59 in 2024 but have since fallen 17.75% as of Jan 10, 2025. Lilly authorized a $15 billion stock buyback on Dec 9, 2024. For bullish investors, this pullback may be the opportunity they have been waiting for. Here are four reasons not to look a gift horse in the mouth and consider taking a position in the company on this pullback.
1) Earnings Are Still Crushing, But $2.83 Billion in IPR&D Charges Muffled Q3 Results
Lilly has been an earnings powerhouse, but its recent earnings came in shy of consensus estimates, which was the primary driver before its selloff. Eli Lilly reported Q3 2024 EPS of $1.18, missing consensus estimates by 27 cents. Revenues rose 20.4% YoY to $11.44 billion, missing $12.09 billion consensus analyst estimates. Backing out revenue for its olanzapine portfolio Zyprexa, which Lilly sold global commercial rights to CHPLAPHARM in April 2023, revenue actually jumped 42% YoY while worldwide volume jumped 36% YoY.
Additionally, Q3 earnings also included a one-time charge known as in-process research & development (IPR&D) charges of $2.83 billion or $3.08 per share. These are charges that Lilly took on the acquisition of Morphic and its integrin therapies, which saw a 17% YoY revenue bump.
2) Tirzepatide Is Still Crushing, Gaining More Approvals
Lilly's GLP-1 drugs are showing no signs of slowing down. They have also proven to be superior to Novo Nordisk's Semaglutide, as evidenced by the 20.2% average body weight loss compared to 13.7% weight loss in its SURMOUNT-5 trials. Tirzepatide was also approved on Dec 20, 2024, for obstructive sleep apnea and is being studied for additional indications, which include chronic kidney disease, cardiovascular risk reduction (reduced the risk of heart failure by 38%) and metabolic dysfunction associated steatohepatitis (MASH). On Jul 22, 2024, China also approved Tirzepatide for obesity, marking the country’s first and only dual GIP/GLP-1 agonist. However, there are 15 copycat GLP-1 drugs in development, which will largely increase competition in the world's second-largest population.
In its third quarter of 2024, worldwide Mounjaro revenues surged 121% to $3.11 billion. Zepbound revenues rose to $1.28 billion. Revenues would have been higher if not for supply shortages. Zepbound launched in the United States in November 2023.
3) Retatrutide Is the Next-Gen GLP-1 Coming
Lilly is expecting to launch its pill version of Tirzepatide in 2026 under Orforglipron. To further cement its GLP-1 throne, Lilly is already preparing its next-gen GLP-1 blockbuster Retatrutide, a triple agonist targeting GIP, GLP-1, and Glucagon receptors. Phase 2 studies indicate that participants averaged 17.5% mean weight reduction in just 24 weeks and lost 24.2% in body weight in 48 weeks. The safety profile was similar to other incretin-based therapies, with gastrointestinal side effects being the most commonly report.
Dr. Ania Jastreboff commented, "Participants treated with the highest dose of Retatrutide achieved a mean weight reduction of 24.2%; this translates to an average absolute weight reduction of about 58 pounds over 11 months of the study.”
Dr. Jastreboff added, “Given that participants had not yet reached a weight plateau at the time the study ended, it appears that full weight reduction efficacy was not yet attained. Longer duration phase 3 trials will enable comprehensive evaluation of efficacy and tolerability of this potential pharmacotherapeutic for the treatment of obesity."
4) LLY Stock Is Forming a Daily Symmetrical Triangle Breakout
A symmetrical triangle is comprised of a descending (falling) upper trendline resistance converging with an ascending (rising) lower trendline support at the apex point. A breakout occurs when the stock surges above the upper trendline resistance. A breakdown occurs when the stock collapses below the lower trendline support. A breakout or breakdown becomes eminent as the stock gets closer to the apex point as the channel narrows.
LLY's symmetrical triangle formed its descending upper trendline resistance at $907.98 to converge at the apex point with its ascending lower trendline support starting at $711.40. The daily anchored VWAP support is at $776.82. The breakout triggered the rise through the $787.22 upper trendline resistance. Daily RSI is rising to the 56-band. Fibonacci (Fib) pullback support levels are at $771.36, $747.56, $717.51, and $678.79.
Actionable Options Strategies: Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered call at upside Fib levels executes a wheel strategy for income in addition to its 0.83% annual dividend yield.
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