Eli Lilly leads the GLP-1 drug space with its shot-based offerings Mounjaro and Zepbound.
Rival drugmaker Novo Nordisk has now introduced a pill version of its GLP-1 weight loss drug.
Eli Lilly’s valuation looks stretched right now — relative to both the industry and the overall market.
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If you bought Eli Lilly(NYSE: LLY) stocks five years ago, you are on to some massive gains. The stock is up more than 470%, compared to a gain of about 85% for S&P 500 index and an advance of about 4% for the average pharmaceutical stock. Should you hang on to a big winner like this or take your winnings and move on? Here are some important facts to consider.
Novo Nordisk(NYSE: NVO) was the first to market a GLP-1 weight loss drug. This class of drugs represents a significant advance in helping people lose weight without having to follow the traditional diet and exercise protocols that are usually a fallback. There are downsides to consider, such as the loss of muscle mass that comes with weight loss, but for many people, GLP-1 drugs have been very helpful.
Image source: Getty Images.
However, as with most drugs, Novo Nordisk was not the only pharmaceutical company to do research in the GLP-1 space. Eli Lilly’s weight-loss drugs, Mounjaro and Zepbound, were second in the market, but were better received. Eli Lilly is now the leader in the GLP-1 niche. It was a significant boon for Eli Lilly’s business, as these two drugs accounted for 54% of the company’s revenue in the first nine months of 2025.
The success of Eli Lilly’s GLP-1 drugs is a mixed blessing. The top line of the income statement grew 46% year-over-year in the first three quarters of 2025. But most of that growth came from just two drugs. Given the still-significant potential for GLP-1 drugs, investors are excited about the success Eli Lilly is currently experiencing. But that success could end sooner than many investors suspect.
For starters, new drugs come with time-limited patent protections. Generic competition usually enters the market when patents eventually expire, leading to what is known in the industry as a patent fold. Essentially, generic versions of a drug are cheaper and take part of the brand name drug. Eli Lilly’s patents still have years to run, but at some point Mounjaro and Zepbound won’t be the blockbuster drugs they are today.
Eli Lilly is aware of this fact, which helps explain why it acquired Adverum Biotechnologies in late 2025 and has just agreed to buy Ventyx Biosciences in early 2026. Basically, management is using the GLP-1 profit to build a pipeline of drugs in preparation for the day when the good times fade.
This is the long-term picture that investors need to keep in mind. There is a short-term problem facing Eli Lilly right now. Specifically, Novo Nordisk has just introduced a pill version of its GLP-1 drug. Mounjaro and Zepbound are hits. People generally prefer pills to needles. It wouldn’t be shocking to see Novo Nordisk’s pill take on Eli Lilly’s GLP-1 drugs. This type of technological advancement is normal for the ever-evolving healthcare sector.
To be fair, Eli Lilly is also working on GLP-1 pills. So he may be able to fend off this competition. However, Pfizer(NYSE: PFE) is also working on GLP-1 drugs and has a partnership to distribute a GLP-1 pill for a Chinese company if that drug is approved. Basically, Eli Lilly’s industry-leading position in GLP-1 drugs is already under attack, and that’s not going to change anytime soon.
That presents a potential problem for Eli Lilly shareholders, as the stock’s price-to-earnings ratio is 52. That’s slightly below its five-year average of 54, but much higher than the 28.4 P/E multiple for the S&P 500, which is trading near all-time highs — and close to the average 10 pharma P/E. Investors make prices much of good news in Eli Lilly’s stock right now, despite the potential risks it faces as a business.
If you care at all about the valuation, you’d probably be better off exiting your Eli Lilly position. It is clearly absolutely expensive. If you don’t follow the healthcare sector closely, you should take a step back and consider what happens when, not if, Eli Lilly’s GLP-1 drugs aren’t the revenue that’s gushing right now. Again, you might decide that taking profits makes sense.
To stay at this point, you have to believe Eli Lilly can defend its GLP-1 position in the near term. And that it can find new drugs with enough potential to make up for the drop in revenue that will come as its GLP-1 drugs eventually face patent failure.
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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.
Is It Time to Ditch Your Eli Lilly Stock? was originally published by The Motley Fool
