Eli Lilly(NYSE: LLY) is executing very well right now, and Wall Street is aware of that. The stock’s price-to-earnings (P/E) ratio of 50 is below its five-year average of 54, but very high on an absolute basis. For reference, the S&P 500 index has a P/E ratio of 28.5. Before you buy shares in Lilly, think about what might happen over the next decade.
The big story around Eli Lilly is the success of its GLP-1 drugs Mounjaro (for diabetes) and Zepbound (for weight loss). They are currently leading the market for this type of medication. The impact on the company’s business is significant, with Mounjaro’s sales rising 109% year over year in the third quarter of 2025. Zepbound performed even better, with sales increasing by 185%.
Image source: Getty Images.
It should be little wonder that investors are excited about Eli Lilly right now. Those huge sales gains pushed the company’s overall sales higher by 54%. That’s an impressive number that demonstrates the current demand for weight loss and related drugs in the pharmaceutical sector.
That same fact, however, should prompt you to start worrying as an investor.
While Eli Lilly is performing quite well with its GLP-1 medications, Novo Nordisk beat it to the market. Lilly’s drugs have simply been more popular, allowing it to unseat Novo Nordisk as the leader in the weight loss space. If you buy Eli Lilly stock, you need to consider the risk that it, too, may be dethroned.
That’s not an idle consideration. Pfizer(NYSE: PFE) is working hard to catch up in the GLP-1 niche after its internal candidate didn’t pan out. It has already acquired a company with a strong GLP-1 drug candidate, and inked a distribution deal with a second company in the hope that its GLP-1 candidate works out. If either of these medications is approved and offers better outcomes than Mounjaro and Zepbound, Eli Lilly could find itself in the position of Novo Nordisk. Because it’s the industry leader, every company is vying for Lilly’s position.
The 10-year time frame is important because that’s roughly how long Eli Lilly’s patent protections are expected to last on Mounjaro and Zepbound. Given the cost and effort required to bring each new drug to market, its maker is granted an exclusive right to sell it. However, this patent protection is time-limited; when it expires, generic-drug makers can copy the medication and sell it at a lower cost. This generally leads to a steep decline in the revenue generated by the original product, a phenomenon known as a patent cliff.
This is a very big deal for a drugmaker. Pfizer is currently working hard to develop new medications to replace blockbuster drugs that will lose patent protection in the next few years. Investors have punished Pfizer’s shares at least partly because of this fact.
However, Lilly could be in the same position a decade from now. The problem could be huge, considering that Mounjaro and Zepbound currently account for over 50% of its top line income.
Eli Lilly is working on new drugs. It’s also working on ways to extend its existing patent protections, including the development of new versions of Mounjaro and Zepbound. At some point, however, these incredibly important medications will no longer be seen as major assets. That’s just how the drug industry works.
Ten years from now is a long time away, and Lilly can make huge profits before then, assuming it doesn’t lose its leadership position in the GLP-1 market. However, given its lofty valuation, investors are clearly pricing in a lot of success right now. Notably, Pfizer’s P/E is currently a much lower 15.
Essentially, if you buy Eli Lilly shares, the premium price you’ll pay is a risk factor. If a competitor unseats it in the GLP-1 space, its valuation is likely to contract. And even if it does continue to lead the GLP-1 market, that dominance has a built-in time limit, given the nature of the patent protections afforded to drugmakers. Most investors should probably tread with caution, as Wall Street has already priced in so much good news here.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
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