On Tuesday, Citi maintained a Buy rating on Eli Lilly (NYSE:LLY) shares and significantly raised the price target to $895 from the previous $675. The adjustment reflects the firm's increased confidence in the sales potential for Eli Lilly's oral small molecule GLP-1 agonist, orforglipron, which is currently in Phase III trials.
The price target increase is attributed to the growing anticipation of risk-adjusted peak sales for the drug, which is being developed as both a standalone and fixed-dose combination treatment. Citi's analysis indicates that concerns about potential drug-related hepato-toxicity are lessening, as patient enrollment in both Phase III trials has been ongoing since 2023.
Eli Lilly's incretin sales, which include GLP-1 receptor agonists, are projected to surpass $85 billion. The firm acknowledges the competitive risks that Eli Lilly and Novo Nordisk (NYSE:NVO) face, especially with the expected entry of generic semaglutide into the Chinese market in the mid-term and Western markets after 2032.
Generic manufacturers such as Sinopep, CSPC, Huaren, Hanyu Shenzhen, and Reddy's are scaling up active pharmaceutical ingredient (API) production and fill-finish capabilities.
Additionally, Citi notes that legislative developments could impact the competitive landscape. Two congressional bills and a senate working group are proposing the elimination of pharmacy benefit manager (PBM) rebates, which could remove a significant competitive barrier for Eli Lilly's rivals.
Despite these potential challenges, Citi believes that Eli Lilly and Novo Nordisk have adequate competitive advantages to maintain their market dominance and justify their current market valuations. The firm's outlook remains positive, anticipating that both companies will continue to grow and meet their financial projections.
InvestingPro Insights
As Eli Lilly (NYSE:LLY) continues to make headlines with its promising drug developments, investors are closely watching the company's financial health and market performance. According to InvestingPro data, Eli Lilly boasts a substantial market capitalization of $685.08 billion, reflecting its significant presence in the pharmaceutical industry. Despite a high P/E ratio of 79.45 for the last twelve months as of Q4 2023, the company has demonstrated robust revenue growth of 19.56% over the same period. This growth is further underscored by a strong gross profit margin of 79.25%, indicating the company's efficiency in managing its cost of goods sold.
InvestingPro Tips highlight Eli Lilly's ability to sustain and grow its dividends, with a track record of increasing dividend payments for 9 consecutive years and maintaining them for 54 consecutive years. This consistency is a testament to the company's financial stability and commitment to shareholder returns. Furthermore, analysts anticipate net income growth for Eli Lilly this year, which could further reinforce investor confidence.
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