With two "miracle drugs" in hand for weight loss and Alzheimer's disease, can Lilly become the first "trillion-dollar pharmaceutical company"?

Can Eli Lilly bypass the "patent cliff" and replicate the success of the "weight loss miracle drug"?

On Monday, November 28th, Truveta Research, a research institution in the medical and health field, released a large-scale analysis based on patient data from the healthcare system, which found that for overweight or obese adults, Eli Lilly's drug Mounjaro, which contains tirzepatide, is more effective than Novo Nordisk's drug Ozempic, which contains semaglutide.

This head-to-head comparison study found that the likelihood of losing 5% of body weight is 1.8 times higher with Mounjaro compared to Ozempic, the likelihood of losing 10% is six times higher, and the likelihood of losing 15% is three times higher.

On the day the research data was released, Novo Nordisk's stock in the US opened lower by about 2% and closed down 2.4% at $101.43 per share, wiping out all the gains from this round of market trends since November 24th.

This result also brings Eli Lilly closer to a trillion-dollar valuation. Currently, there are five technology companies with valuations exceeding a trillion dollars, and in the healthcare field, Eli Lilly is the most likely to take the lead.

This year, the weight loss miracle drug and Alzheimer's disease drugs have been highly sought after in the market, making Eli Lilly the first large pharmaceutical company to achieve a market value target of $500 billion, surpassing Johnson & Johnson and UnitedHealth to become the world's highest-valued pharmaceutical and healthcare company, with a market value exceeding $93 billion more than Novo Nordisk.

However, in reality, it is not a coincidence that pharmaceutical companies have long been absent from the trillion-dollar market value club, because the biggest obstacle that hinders Eli Lilly from reaching the trillion-dollar throne, and also the problem that all pharmaceutical companies are facing, is patents.

Can Eli Lilly avoid the "patent cliff"?

Patents are a hurdle that all pharmaceutical companies cannot overcome.

The main reason is that pharmaceutical companies heavily rely on their patents for profitability, and patents have a limited duration. Therefore, once a patent expires or other generic competitors enter the market, it often means a sharp decline in sales for the patent holder.

This can also lead to pharmaceutical companies sacrificing long-term innovation for short-term growth in order to maintain profitability.

This is also a significant reason why many pharmaceutical companies "fall": they did not bet on more cutting-edge research and development, but instead spent billions of dollars to purchase patents with lower return on investment. As Eli Lilly's market value soars, the primary question it faces is whether it can realize and break free from this fate.

Reports show that Eli Lilly's research and development efficiency has lagged behind its peers since the beginning of this century. This situation improved somewhat after Eli Lilly acquired the brain imaging company founded by its Chief Scientific Officer, Daniel Skovronsky, in 2010.

Skovronsky stated that he hopes to avoid the critical mistakes that most people in the industry tend to make. He believes that the "short-sighted behavior" of pharmaceutical companies is equivalent to "transferring funds from the balance sheet to the income statement."

In an interview with the media, Skovronsky said:

"When a company has a blockbuster drug that performs exceptionally well, every marginal investment flows towards that drug, rather than towards untested and unvalidated drugs."

"This drug overshadows other products, and those other products are in desperate need of manpower, funding, and attention... Once the blockbuster is sold out, they find their shelves empty, with nothing else left."

Finding an "alternative" solution

Patent expiration, pricing pressure, and competition are inevitable for all pharmaceutical companies, and Eli Lilly's recent business moves may hint at its solution.

In June of this year, Eli Lilly acquired the publicly traded company DICE Therapeutics for $2.4 billion, bolstering its presence in the immunology field. In October, Eli Lilly acquired Point Biopharma, a company in the field of radiopharmaceuticals for cancer, for $1.4 billion, signaling its entry into the nuclear medicine market.

According to Skovronsky, Eli Lilly is seeking growth in its "non-leading areas." He stated:

"We will consider business development from a longer-term perspective, considering returns that can be obtained in the next few decades or even longer."

He believes that the acquisitions include not only companies but also teams, technologies, and platforms that can expand capabilities.

Eli Lilly's advantage in the fields of immunology and cancer lies in its possession of two blockbuster drugs for "weight loss" and "Alzheimer's disease," from which it has already identified some opportunities that other companies do not possess.

Over the past three years, Eli Lilly's stock price has risen by 300%, largely due to its seizing of one of the biggest opportunities in history - global obesity.

However, whether Eli Lilly can replicate its success after seizing this opportunity remains unknown. Evan Seigerman, an analyst at BMO Capital Markets, stated, "This (the obesity field) is a huge market that has never truly been solved."