Innovative Pipeline and Strategic Acquisitions Set Stage for Sustained Growth

What are the underlying business or industry changes driving this perspective?

• Eli Lilly and Company discovers, develops, and markets human pharmaceuticals worldwide.
• Pipeline developments, including positive Phase III results for tirzepatide in obstructive sleep apnea and new product approvals, are expected to drive future revenue growth.
• Expansion of manufacturing capability with acquisitions such as the injectable medicine facility from Nexus Pharmaceuticals and ground-breaking of a new site in Germany, aimed at maximizing output, should enhance production capacity, thereby boosting revenue.
• The introduction of the multi-dose KwikPen delivery device for Mounjaro in Europe and other markets to address supply constraints, allowing for higher capacity and potentially improving net margins by increasing efficiency.
• Progress in new product development, such as Phase III study initiations and positive clinical results in areas like cardiovascular risk reduction and new indications for existing drugs, is likely to enrich the product portfolio and enhance long-term earnings.
• Commitment to continued investments in internal and external pipeline development and manufacturing expansion indicates a focus on sustaining long-term growth and profitability by enhancing operational scalability and innovation.

How have these above catalysts been quantified?

• Analysts are assuming Eli Lilly's revenue will grow by 21.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.1% today to 35.3% in 3 years time.
• Analysts expect earnings to reach $22.7 billion (and earnings per share of $25.24) by about May 2027, up from $6.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $24.5 billion in earnings, and the most bearish expecting $17.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.9x on those 2027 earnings, down from 119.0x today. This future PE is greater than the current PE for the US Pharmaceuticals industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.06%, as per the Simply Wall St company report.

What could happen that would invalidate this narrative?

• Dependence on manufacturing expansion could lead to execution risks, and any delays or issues could impact revenue growth and margin projections.
• High R&D expenses, including a 27% increase driven by late-stage development and early-stage research, may place pressure on net margins if not offset by high product sales.
• Supply constraints, particularly in the U.S. for key products like Trulicity, Mounjaro, and Zepbound, indicate that demand may outstrip supply, potentially limiting revenue growth.
• Marketing, selling, and administrative expenses increased 12%, which could reduce net margins if sales growth does not outpace these expenses.
• Continuing need for significant investment in manufacturing facilities introduces risks related to capital allocation inefficiencies, which may affect earnings growth and future profitability.