Eli Lilly (LLY)

A GLP-1 Franchise Already Carries the Income Statement

One drug now earns more than half of Eli Lilly's revenue. Tirzepatide, a GLP-1 drug (the class that controls blood sugar and appetite) sold as Mounjaro for diabetes and Zepbound for weight loss, earned $36,507M in FY2025, 56.0% of Lilly's $65,179M revenue. Mounjaro alone was $22,965M (35.2%).

So the question for Lilly is concentration, not growth. Tirzepatide sits above the 40% line for high concentration; the concentration guide ranks the six large drugmakers from Pfizer's Eliquis at 12.7% to Novo Nordisk's semaglutide at 73.9%. The franchise is still growing, and a valuation turns on how long it can outrun the patent dates on everything else.

Two Patent Calendars

The US compound patent on tirzepatide runs to 2036, and it anchors the growth case. The nearer events sit on three older drugs: Trulicity ($4,276M, diabetes), Jardiance ($3,431M, diabetes and heart failure) and Verzenio ($5,723M, breast cancer), together $13,430M or ~20.6% of FY2025 revenue. The 10-K puts a Medicare price, set under the Inflation Reduction Act (IRA), on Jardiance from 2026 and on Trulicity and Verzenio from 2028. Only Trulicity loses its compound patent before 2029, so most of that 20.6% meets a price cut first (patent expiry dates by company).

Margin, R&D and Payout

Operating income was $26,302M, a 40.3% margin. R&D was $13,337M, 20.5% of sales, close to the 20.9% average for 2024 in the survey by PhRMA, the US drug industry body, and inside the ~15-25% range often quoted for large drugmakers. That is the spending rate of a company still feeding a pipeline behind tirzepatide.

The dividend was $6.00 per share, 26.1% of diluted EPS of $22.95. The rest of the cash goes to manufacturing capacity and clinical programmes.

Valuation Framework

Lilly is a sum of parts with two schedules: tirzepatide growing to its 2036 US patent date, and the ~20.6% group of older drugs declining on its own patent and IRA dates. The pipeline is valued with risk-adjusted NPV (rNPV), which weights revenue by the probability of approval (7.9% from Phase I on the BIO 2011-2020 rates, 9.1% for biologics) and discounts at an ordinary cost of capital. The probability of success guide explains why clinical risk belongs in the success weights. A sector multiple describes the average drugmaker and says little about one whose largest product is still growing this fast.

What to Watch in the Financials

Tirzepatide share of revenue. 56.0% in FY2025. Each further step up concentrates the exposure to supply, competition and pricing on one franchise.

Sales lost on older drugs. Trulicity, Jardiance and Verzenio each need an explicit decline after loss of exclusivity (LOE). Generics take ~77-82% of a chemically made brand's units within 12 months of first entry, and the IRA adds a price cut on top.

Operating margin against R&D. FY2025 combined a 40.3% margin with 20.5% of sales on R&D while tirzepatide sales were still rising. If margin falls without R&D stepping down, launch costs or losses on older drugs are the usual cause.

Trial results. A late-stage result moves a pipeline's risk-adjusted value before it reaches EPS. Phase transitions say more than multiples.

Key Risks

GLP-1 competition. Novo Nordisk's semaglutide, the rival GLP-1, was 73.9% of its FY2025 net sales. Two companies dominate the obesity and diabetes market, and competition between them can cut prices or shift share faster than a patent calendar suggests.

Concentration above 40%. Merck's Keytruda, Novo's semaglutide and Lilly's tirzepatide all sit above the line. Because Lilly's drug is still growing, the margin looks strong now, and any slowdown in tirzepatide would hit profit quickly.

IRA and patent events on the other lines. ~20.6% of revenue carries dated price and patent events between 2026 and 2031. They are smaller than tirzepatide, but they set how much cash the older drugs leave to fund R&D.