Gary Black Tracker
2025.08.15 18:15

$Eli Lilly(LLY.US) looks compelling even after rebounding +12% off its lows last week after its Orforglipron weight loss pill showed lower efficacy than expected in Phase 3 trials, sending the stock down -16%.

The investment thesis for LLY remains the same: In the U.S., fewer than 1 in 10 adults are on a GLP-1 drug, despite nearly three-quarters being overweight or obese. Outside the U.S., the opportunity is even greater. LLY is the world market leader in weight loss drugs, with Mounjaro and Zepbound with expected FY’25 sales of $20B and $12.5B respectively, and growing at +71% YoY and +150% YoY respectively, but so far limited to injectable “pens” that need to be refrigerated. A once-a-day weight loss pill could change all that. Cheaper to make, easier to distribute and simpler to take and store anywhere, GLP-1 weight-loss pills could finally bring obesity treatments to the masses.

Last week, Lilly mgmt announced that Zepbound’s oral equivalent, Orforglipron, has shown just 11% weight loss (vs placebo) in year-long Phase 3 trials, vs an expected weight loss of 15% shown by its competitor Novo Nordisk’s Wegovy weight loss pill. While the amount of medicine in each was not comparable (Wegovy had 50 mg of Semaglutide and Orforglipron had 36 mg of its active ingredient) and oral Wegovy can’t be taken on an empty stomach while Orforglipron can, the combination of lower efficacy and a 10% discontinuation rate in Orforglipron’s Phase 3 trials (vs 7% for oral Wegovy) caused LLY stock to drop -16% in two days.

Even after its 12% rebound so far this week, $Eli Lilly(LLY.US) still trades at just 23.5x FY’26 Adj EPS, with 4-year forward EPS growth of +21%. Over the past three years, LLY’s normal 2-yr forward P/E has been 36x. Once approved in 2026, we expect LLY to position its Orforglipron weight loss pill as a cheaper and more convenient alternative to GLP-1 injectibles. Even 11% weight loss is huge for obese patients struggling to shed excess weight. We expect LLY’s rebound to continue as investors buy the dip.

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