For the past couple of years, two of the biggest themes fueling the stock market to new highs are breakthroughs in the weight loss market and euphoria around artificial intelligence (AI).
What if I told you that there's a company that operates across both of these opportunities, and that despite a 61% gain in its share price during the past year, the stock is still a compelling buy?
Let's explore what's fueling Eli Lilly(NYSE: LLY) right now, and more importantly, assess why the company looks well positioned for decades to come.
It's still early days for weight loss
Right now the weight loss market is experiencing a renaissance thanks to the rise of glucagon-like peptide-1 (GLP-1) agonists. At the moment, Novo Nordisk leads the GLP-1 arena thanks to its lineup of blockbuster drugs including Ozempic, Wegovy, Rybelsus, and Saxenda. But Lilly is quickly emerging as a contender.
Two of Lilly's fastest growing revenue streams come from its diabetes and obesity care medications, Mounjaro and Zepbound. Despite each treatment becoming multibillion-dollar drugs for Lilly, the company isn't even close to full production capabilities. During the course of the year, Lilly has made a concerted effort to increase supply of its GLP-1s through a series of manufacturing upgrades.
In addition, there is an increasing amount of research that suggests GLP-1 medications have applications outside of treating diabetes and chronic weight management.
I am optimistic that Mounjaro and Zepbound could become a larger platform for Lilly by gaining additional medical approvals from the Food and Drug Administration (FDA). To me, Lilly is still in the early days of its ambitions in the weight loss market and I think its success in the GLP-1 market is just beginning.
Image source: Getty Images.
$62 billion of opportunities
Outside of weight loss, Lilly has $62 billion worth of opportunity split between two markets: Alzheimer's disease and eczema.
According to Market.us, the total addressable market for Alzheimer's disease is expected to grow at a compound annual rate of 18.8% during the next decade and reach $30.8 billion by 2033. Moreover, Precedence Research is forecasting the global eczema market to be worth $31.4 billion by 2034 -- a little more than double its current size.
Lilly is well positioned to carve out a spot in both markets after FDA approval of its Alzheimer's drug earlier this year, and its eczema treatment, Ebglyss, just a few weeks ago.
Receiving approval for two new treatments in markets outside of weight loss helps Lilly create an even more diversified treatment portfolio, and positions the company for further billion-dollar opportunities during the next several years.
Lilly is an under-the-radar artificial intelligence opportunity
It seems like just about every reference to artificial intelligence revolves around semiconductor chips, robots, enhanced workplace productivity, or self-driving cars. But what about other use cases outside of the technology sector?
AI in healthcare is expected to become a $600 billion opportunity by early next decade, according to Precedence Research. And while the story hasn't gotten much attention, Lilly is already making some interesting moves at the heart of AI and healthcare.
Earlier this year, Lilly announced a strategic partnership with ChatGPT developer OpenAI. For now, the company's work with OpenAI focuses on antimicrobial resistance (AMR).
While this is an important area within the healthcare world, I think there's a larger opportunity at hand. Namely, generative AI could emerge as an important tool to help pharmaceutical companies better address underserved and more complex illnesses that do not yet have mainstream solutions.
A unique position
In my opinion, much of the recent share price appreciation in Lilly stock is due to the bright outlook of the weight loss industry. While Mounjaro and Zepbound stand to be large sources of growth for many years, I think most investors haven't even considered Lilly's potential in treating Alzheimer's disease or eczema. Furthermore, investors should remember that AI is going to affect all industries and opportunities exist well beyond the technology world.
To me, Lilly is in a unique position because many of its catalysts should bear fruit in the near term, but at the same time, the company is laying the groundwork and making necessary investments to ensure these tailwinds are maintained for the long run as well.
For all of these reasons, I see Lilly as one of the most important opportunities over the next decade and think the stock will continue generating market-beating returns for years to come.
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Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
