Lilly stock skyrockets, raising profile of city’s life sciences sector
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A little more than a decade ago, Eli Lilly and Co. was limping along.
The Indianapolis-based drugmaker’s pipeline sputtered, turning out only two new medicines from 2005 to 2013, neither of them big sellers. A much-anticipated drug to treat Alzheimer’s disease, called semagacestat, failed to work better than a placebo in a late-stage clinical trial. Patents were about to expire on some of the company’s most profitable drugs, accounting for more than 60% of sales.
Executives were pleading with investors to stay on board as they tried to right the ship. The company announced it would chop 5,500 jobs, about 13% of its workforce, the biggest downsizing in memory.
That was then.
Today, in a remarkable turnaround, Lilly is on top of the world. The company has launched 20 drugs in the past decade to treat diseases from arthritis and psoriasis to diabetes and cancer.
In recent months, Lilly has overtaken every competitor to become the most valuable drugmaker in the world.
“It’s a far cry, indeed, from the old days,” said Roger Lee, senior research analyst at Kirr Marbaugh & Co. LLC in Columbus. “Lilly is firing on all cylinders.”
Lilly is now worth an eye-popping $518 billion, as measured by market value—the price of its stock times the number of outstanding shares. That’s more than 10 times its value in 2010, $40 billion, when Lilly was whispered about as a potential takeover target.
The drugmaker with the next-highest market value, $450 billion, is New Jersey-based Johnson & Johnson, a company more than three times Lilly’s size in revenue.
Lilly is now worth more than all the gold in Fort Knox ($282 billion) and all the residential real estate in Indianapolis ($122 billion), with billions of dollars to spare.
Earlier this month, Lilly posted second-quarter earnings that beat Wall Street expectations by a wide measure, including sales of nearly $1 billion for its new drug for diabetes, Mounjaro, which is also being evaluated for weight loss. The company also raised full-year projections for sales and profits.
In response, shares of Lilly soared to an all-time high that day, up 18% to $535.59, making it one of the best performers on Wall Street. The rise continued this week, with shares closing Tuesday at $546.62.
The stock’s performance has turned heads around the country, where people are more accustomed to seeing successful pharmaceutical and biotech companies in Boston, San Francisco, San Diego and other coastal cities.
“Sorry to break it to you Boston and SF,” tweeted Brad Loncar, founder of BiotechTV, a video news site covering life sciences. “The most valuable/successful drug developer of all time is based in the Midwest, in Indianapolis.”
What all this means for Lilly is that investors now view the company as more stable and less risky—although with the stock in record territory, it also raises questions about how much higher it can go.
Midwest success
Beyond that, what it means for Indianapolis is that one of the city’s oldest and biggest employers does not have to worry about being bought and uprooted, potentially wiping out thousands of jobs.
Lilly has 36,000 employees worldwide, including about 10,500 in Indiana. It rang up $28.5 billion in revenue last year and is the second-largest public company in both the city and state, after Elevance Health.
“As a civic and health care giant, Lilly’s economic and cultural influence remains unmatched,” Mayor Joe Hogsett said in a statement to IBJ. “… We’re proud of Lilly’s continued success, and we are excited for its scientific breakthroughs that will ultimately improve the lives of residents in Indianapolis and people around the globe.”
Mark Muro, a senior fellow at the Washington, D.C.-based Brookings Institution think tank who specializes in regional economies, said Lilly stands out as an example of how life sciences companies can succeed far from the huge research cities on the coasts.
“The economy in the last 15 years has been what I would call ‘winner-take-all,’ with highly educated, superstar places pulling away from the rest of the country,” he said. “So this is a nice counter to that. Lilly epitomizes the potential for a more decentralized economy.”
Much of the excitement lately is due to high expectations for Mounjaro, which hit the market in June 2022 as a treatment for Type 2 diabetes. The drug rang up $979.7 million in the quarter, placing it firmly in blockbuster territory (drugs that sell $1 billion or more in a year). For the first six months of this year, Mounjaro has sold $1.55 billion.
The drug, which has shown promise as a weight-loss treatment, is selling faster than Lilly can make it, creating delays in fulfilling orders. Federal regulators are expected to approve it to treat obesity this year, and doctors are already prescribing it off-label for weight loss.
Some analysts expect Mounjaro to ring up tens of billions of dollars a year in sales as demand spikes for a treatment for weight loss. More than 40% of all American adults are obese, and the market is growing.
Trung Huynh, a pharmaceutical analyst at Credit Suisse, told clients in a note this month that he expects sales of Mounjaro to hit $20.4 billion by 2029, which would make it Lilly’s best-selling drug of all time. He said he was pleasantly surprised by Mounjaro’s success in the market.
“Heading into 2023, there was a large degree of investor nervousness for Mounjaro’s performance,” Huynh wrote. He also raised his forecast on Lilly’s share price to $580 within 12 months, up from his previous forecast of $490.
Lilly’s top-selling drug is currently Trulicity, a diabetes and cardiovascular medicine that had sales last year of $7.4 billion.
The company also is awaiting approval from the U.S. Food and Drug Administration for an experimental drug for Alzheimer’s disease, another huge potential sales market. Earlier this year, Lilly reported that the drug, called donanemab, can modestly slow patients’ inevitable worsening by four to seven months.
Huge expansion
The drugmaker has also been investing heavily in new manufacturing and research facilities. In April, Lilly announced it will invest an additional $1.6 billion in a new drug manufacturing site in Boone County that it announced last year at an initial price tag of $2.1 billion, bringing the total cost to $3.7 billion, the most the company has ever spent on a single manufacturing site.
CEO David Ricks said the expanded manufacturing capacity will create 200 more jobs at the site, bringing the total to 700 jobs.
The company said the huge expansion is needed to keep up with expected growing demand for its pharmaceutical products over the next decade. The company plans to launch four significant drugs this year for Alzheimer’s disease, chronic kidney disease, dermatitis and other diseases, and has more than a dozen other drugs in development.
Lilly declined to make Ricks or another senior leader available for an interview in recent weeks with IBJ. But in a conference call on Aug. 8, Ricks told analysts and investors the company had no plans to slow down its torrid pace of drug development and manufacturing.
“It’s been a very productive first half of the year for Lilly, and we look forward to continuing our momentum into the second half,” Ricks said.
David Johnson, retired CEO of the Central Indiana Corporate Partnership, who played a role for two decades in helping build and stitch together Indiana’s life sciences sector, said Lilly has been successful by aiming high and tackling major health care challenges, from diabetes to Alzheimer’s disease.
The company, he said, made the right bet to invest big in research and to rely for the most part on in-house innovation and collaborative partnerships, rather than in huge mergers and acquisitions.
“Lilly tackles big, ambitious human-health objectives—diabetes, obesity, Alzheimer’s—and sticks with them, often over many years, until they succeed. And at the moment, they are succeeding pretty spectacularly,” Johnson said.
Alan Palkowitz, who retired from Lilly in 2017 as a vice president and longtime leader of the company’s discovery chemistry group, said Lilly’s success was due in big part to its current and former employees living and working in Indiana. But he said the state’s expanding life sciences community and biomanufacturing base plays a role as well.
“It demonstrates that innovation happens here,” said Palkowitz, who is now CEO of the Indiana Biosciences Research Institute, which acts to bridge the gap between academic research labs and the business world.
Spreading the wealth
Lilly’s success is also creating untold riches for its shareholders, who have seen the stock value increase more than 1,000% in the past decade.
The company’s largest shareholder is the Lilly Endowment, one of the largest charitable foundations in the country. Members of the Lilly family set up the endowment in 1937 with gifts of stock.
Over the past decade, the endowment’s assets, which are almost all from Lilly stock, have grown from $7.7 billion in 2013 to $40.8 billion at the end of 2022.
The endowment is watching its riches increase even as it sells off millions of shares in its namesake company to raise money for grants. Under federal law, private foundations are required to make charitable donations equal to or more than 5% of their assets during a given year.
Since April, the Lilly Endowment has sold at least 1.8 million shares of Lilly stock, according to government filings. That still left it with nearly 101 million shares of Lilly stock at the end of July, or about 10.6% of the company’s outstanding shares.
The foundation, which makes grants to arts, education, religious and community development organizations in Indiana and beyond, last year paid $1.3 billion in grants and approved another $1.3 billion in new grants. Since its founding, the endowment has disbursed grants to 10,722 charitable organizations, most of them in Indiana.
That means that, as Lilly does well, Indiana charities do well—receiving millions of dollars a year from the foundation.
“I cannot think of a single other philanthropic foundation where the founders—in this case, the Lilly family—made clear that the philanthropic mission was to advance the prosperity of the place where their business began and [where] the family members were also deeply engaged as citizens,” Johnson said.
He added: “The Ford Foundation does great work, but it’s not particularly focused on Detroit. Same is true with the Kauffman Foundation, which advances entrepreneurism across America, but puts no special emphasis on Kansas City.”
Of course, what goes up could come down one day, and no one is predicting that Lilly stock will hover in the $500 range indefinitely.
Still, of the 22 analysts who follow Lilly, 13 have a “buy” or “strong buy” rating on the stock, eight have a “hold” rating, and only one has a “sell” rating.
Overall, analysts like what they see and say the company is probably headed for several more years of growth. They point out the company has little debt and more than $4 billion in free cash flow to support upcoming acquisitions and investments.
“They have a very clear runway for sustainable and profitable growth,” said Lee of Kirr Marbaugh,” in an environment where many small life science companies are not as fortunate.”