Key Points
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Lilly's pipeline is packed with metabolic health programs.
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Its commercialized metabolic health medicines are big earners.
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It's also buying assets and businesses at a fast pace.
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There's no rule that says a leading pharma stock can't go down. On that note, shares of Eli Lilly (NYSE: LLY) are still down by 7% from their recent high set in mid-August, even though its moneymaker metabolic medicines had powered 48% revenue growth in the second quarter.
Some investors seem to be afraid that the company's willingness to sell those drugs at competitive prices will erode its margins. But I think that fear is very much overblown and that this stock is obviously worth buying while it's marginally cheaper than before.
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Volume is climbing, and more medicines are in the pipeline
Tirzepatide, the drug sold as Mounjaro for type 2 diabetes and as Zepbound for obesity, accounted for $14.9 billion of Lilly's $23 billion in Q2 revenue, a 73% increase from the same quarter a year ago.
The part of that success story that some people are taking issue with is that Lilly's worldwide sales volume was up 60% year over year, while its realized prices declined 13%. So the logic goes that if prices continue to be brought down to capture more volume, it'll eventually be detrimental to earnings. But management recently raised its 2026 revenue forecast to $85 billion to $87 billion, and there's no indication that earnings are under pressure.
What's more, the pharma's next crop of metabolic drugs could widen its lead over its arch-competitor, Novo Nordisk.
Its candidate retatrutide, for instance, is formulated as a weekly shot and targets three different receptors for weight loss. Treatment with the molecule led to an average weight loss of 28.3% at the maximum tested dose over 80 weeks in a phase 3 trial in adults with obesity or overweight. Lilly will apply for its approval in the first quarter of 2027, per management.
Another candidate, eloralintide, which activates a set of receptors linked to the fullness-promoting hormone amylin, produced up to 20.1% weight loss in a 48-week phase 2 trial, and Lilly is also testing its performance alongside drugs like tirzepatide.
So even if the company is accepting lower prices for its cash cows, it has new, potentially high-earning ones in the queue.
Funding the next act
In the first half of 2026, Lilly generated $16 billion of operating cash flow.
That cash, plus new borrowing, is funding diversification of the pipeline. Lilly spent more than $13 billion on acquisitions and purchases of in-development drug programs in the first half of this year alone, including buying a sleep disorder company, and it then made three infectious disease acquisitions in July. By the end of June, its long-term debt stood at $47.8 billion, against $9 billion in cash.
So even if the stock loses more value in the near term, over the long term, the company has an abundance of different avenues for growth, many of which go beyond its wheelhouse of commercialized medicines today. And that's why its shares are worth buying on the dip for as long as it lasts.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.