Eli Lilly leads the field of GLP-1 drugs with its injectable products Mounjaro and Zepbound.
Rival drugmaker Novo Nordisk has now launched a pill version of its GLP-1 weight loss drug.
Eli Lilly’s valuation looks overpriced right now – both relative to the industry and the market as a whole.
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if you buy Eli Lilly and Company(NYSE: LLY) With stocks from five years ago, you were sitting on some huge gains. The stock is up more than 470%, compared with gains of about 85% in the same period S&P 500 Index Index and pharmaceutical stocks rose about 4% on average. Should you hold on to big winners like this, or accept the gains and move on? Here are some important facts to consider.
Novo Nordisk(NYSE: NVO) The first GLP-1 weight loss drug to be marketed. This class of drugs represents a major advance in helping people lose weight without having to follow traditional diet and exercise regimens that are often a fallback. While there are some negatives to consider, such as the loss of muscle mass that comes with weight loss, for many people GLP-1 medications provide a huge help.
Image source: Getty Images.
However, as with most drugs, Novo Nordisk is not the only pharmaceutical company working on GLP-1. Eli Lilly and Company’s weight loss drugs Mounjaro and Zepbound are second on the market but more popular. Eli Lilly is currently the leader in GLP-1. This is a huge boon to Eli Lilly’s business, as the two drugs will account for 54% of the company’s revenue through the first nine months of 2025.
The success of Eli Lilly’s GLP-1 drug has been mixed. Through the first three quarters of 2025, revenue on the income statement increased significantly by 46% year-over-year. But most of the growth came from just two drugs. Given that GLP-1 drugs still have huge potential, investors are excited about Eli Lilly’s success so far. But that success may end sooner than many investors think.
First, new drugs are protected by time-limited patents. When patents finally expire, generic competition often enters the market, leading to what the industry calls a patent cliff. Essentially, generic drugs are cheaper and can take share from brand-name drugs. Eli Lilly’s patent still has a few years left, but at some point, Mounjaro and Zepbound won’t be the blockbuster drugs they are today.
Eli Lilly is aware of this fact, which helps explain why it acquired Adverum Biotechnologies in late 2025 and just agreed to buy Ventyx Biosciences Early 2026. Basically, management is using the GLP-1 windfall to build out its drug pipeline in preparation for the day when the good times are over.
This is the long-term outlook that investors need to keep in mind. Eli Lilly is facing a short-term problem right now. Specifically, Novo Nordisk just launched a pill version of its GLP-1 drug. Mounjaro and Zepbound are both lenses. People generally prefer pills to needles. It wouldn’t be shocking to see Novo Nordisk’s drug taking market share from Eli Lilly and Company’s GLP-1 drug. This kind of technological advancement is normal for the ever-evolving healthcare industry.
To be fair, Eli Lilly is also working on a GLP-1 pill. So it might be able to fend off that competition. However, Pfizer(NYSE: PFE) The company is also working on GLP-1 drugs and has entered into a partnership to distribute GLP-1 pills to a Chinese company if the drug is approved. Basically, Eli Lilly’s industry leadership in GLP-1 drugs is already under attack, and that’s not going to change anytime soon.
This creates a potential problem for Eli Lilly shareholders, as the stock trades at a whopping 52 times earnings. That’s slightly below the five-year average of 54x, but well above the 28.4x price-to-earnings ratio for the S&P 500, which is currently near all-time highs, and well above the roughly 10x price-to-earnings ratio for the average pharmaceutical stock. Investors are pricing in a lot of Despite the potential business risks Eli Lilly faces, there’s currently good news for Eli Lilly’s stock price.
If you care deeply about valuation, you might be better off exiting your Eli Lilly position. In absolute terms, this is obviously expensive. If you don’t follow the healthcare industry closely, you should take a step back and consider what will happen when, not if, Eli Lilly’s GLP-1 drug doesn’t have the revenue surge it is experiencing now. Likewise, you might think that taking profits makes sense.
To hold on to this, you need to believe that Eli Lilly can defend its GLP-1 status in the short term. And it could find new drugs with enough potential to offset revenue declines as its GLP-1 drugs eventually face a patent cliff.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
Is it time to sell Eli Lilly stock? Originally posted by The Motley Fool
