Eli Lilly: The First Trillion Dollar Drug Company?

The company has a chance to enter an exclusive club dominated by tech giants.

Today, there are seven publicly-traded companies in the world worth more than a trillion dollars.

Six of them are what people think of as technology companies: Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta.

While one of them is an oil company—Saudi Aramco—which is majority owned by the Saudi government.

But if things stay on the current trajectory, later this year or sometime next year, the first health care company might join the trillion-dollar club: Eli Lilly, maker of the popular weight loss drug Zepbound.

This is a company that just crossed the $800 billion market cap level for the first time, having added $250 billion of market value just since the start of 2024.

So, it’s not hard to imagine it getting from $800 billion up to $1 trillion at some point.

If that happens, it would be pretty impressive because it’s not easy for a health care company—specifically, a pharmaceutical company—to become so large.

Don’t get me wrong, the drug industry is huge, with annual global sales of around one and a half trillion dollars. But it’s a challenge for any single drug company to stay on top for long.

For one, developing successful drugs is hard— only 12% of drugs that enter clinical trials are ultimately approved by the FDA— and it takes an average of 10 to 15 years and $2.6 billion to bring one of those successful drugs to market.

On top of that, even for the drugs that are approved, there’s no guarantee that they will be commercial successes, let alone the massive hits that bring in billions of dollars of revenues.

And when a company does get lucky and stumbles onto one of those hits, it has only a limited window to sell it before lower-cost competitors enter the market.

The model in the U.S. and in many other countries is for a drug to have patent protection for a number of years—something like two decades—after which competitors can create and sell generic versions of the drug, driving down prices.

A great illustration of this is Pfizer, maker of the statin Lipitor—the second-best selling medicine of all time.

Lipitor came to market in the late 1990s and surged out of the gate as doctors began prescribing the medication to help lower peoples’ cholesterol.

Sales of the drug peaked at $13 billion in 2006 and stayed around there for several years.

But after Lipitor’s patent expired on 2011, sales plummeted, taking global sales of the drug down below $1.5 billion.

A more recent example is AbbVie’s Humira, the best-selling medicine of all time. After the drug’s patents expired and competitors began selling cheaper versions of the rheumatoid arthritis drug in 2023, Humira sales tumbled 32%.

Pfizer, and to a lesser extent, AbbVie, have struggled to make up for the decline in the sales of their best-selling drugs.

It’s certainly possible to do it—but this business model where a drug makes a company a lot of money for a period of time and then sales of the drug eventually plummet—may be why we haven’t seen drug companies become as massive as say, tech companies.

Eli Lilly is no exception; it will face similar competitive pressures in the future for its weight loss drug.

But in the meantime, what Eli Lilly has going for it is the fact that is has one of the leading drugs in a market that is expected to be absolutely massive.  

Zepbound and other anti-obesity drugs are expected to become the best selling drugs of all time, with analysts forecasting the category to generate sales of over $100 billion per year by the end of the decade.

Goldman Sachs says that 15 million Americans could be taking these drugs by 2030.

That’s why Eli Lilly’s market value has been ballooning. Lilly, together with its chief rival Novo Nordisk—maker of Ozempic and Wegovy—will dominate this market for the next several years.

Lilly is expected to generate over $12 billion of profits this year, double what it made last year. And by 2026, profits are expected to nearly double again to $23 billion.

Profits are also soaring for Novo Nordisk, Europe’s most valuable company with a $636 billion market cap.

That said, while both of these companies are firing on all cylinders right now, they are trading at expensive valuations, meaning that their market values are high relative to their profits.

That’s a reflection of the excitement surrounding the potential of weight loss drugs. The question is: are investors getting too excited, making the stocks overvalued?

Time will tell.

We’ll see if either one or both of these stocks eventually reaches a $1 trillion market cap. My hunch is they will, but I don’t own either of them today.