Top broker Goldman Sachs reckons US big pharma stock Eli Lilly And Co (NYSE: LLY) has the credentials to replace electric vehicle producer Tesla Inc (NASDAQ: TSLA) in the Magnificent Seven.
That's a pretty big call, but then again, Eli Lilly's GLP-1 diabetes and obesity drugs are a pretty big deal.
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Why could this US stock replace Tesla in the Magnificent Seven?
Just as electric vehicles have been a game changer in car manufacturing, GLP-1 drugs are a game changer in healthcare and the fight against the global epidemics of Type 2 diabetes and obesity.
Eli Lilly is the second-mover in the GLP-1 space. It has followed Novo Nordisk (NYSE: NVO), the Danish pharmaceutical company that invented the more well-known GLP-1 drugs, Ozempic and Wegovy.
But before we go any further, let's recap who the Magnificent Seven are.
The club comprises seven of the largest US stocks by market capitalisation. They have led market returns in recent years. All of them are involved in large technology-driven global growth trends.
They are Apple Inc, Amazon.com Inc, Alphabet Inc, Meta Platforms Inc, Microsoft Corp, Nvidia Corp, and Tesla Inc.
The chart below shows their share price percentage growth rate over the past two years.
Who is Eli Lilly?
US stock Eli Lilly is a major pharmaceutical company founded by Colonel Eli Lilly 150 years ago.
Eli Lilly's diabetes drug is called Mounjaro. Its obesity drug, Zepbound, is simply a larger dose of the same ingredient in Mounjaro, which is tirzepatide.
Tirzepatide is a GIP and GLP-1 receptor agonist, so it activates both GIP (glucose-dependent insulinotropic polypeptide) and GLP-1 (glucagon-like peptide-1) hormone receptors.
This is what makes Eli Lilly's products different to the GLP-1 products of its first-mover rival.
Novo Nordisk manufactures the world-renowned diabetes drug Ozempic and its obesity equivalent, Wegovy. The key ingredient in both drugs is semaglutide, which is a GLP-1 receptor agonist only.
Ozempic has the first-mover advantage in the GLP-1 space. The United States Food and Drug Administration approved Ozempic in December 2017, and then Wegovy in June 2021.
The FDA approved Eli Lilly's Mounjaro for diabetes in May 2022 and Zepbound in November 2023.
While Ozempic and Wegovy are the most well-known GLP-1 brands, Zepbound is a significant threat given it is more effective for weight loss.
In clinical trials, Zepbound delivered an average of 21% weight loss over 72 weeks in patients with obesity, but without diabetes, at the highest dose.
This compares to a 15% to 16% average weight loss over 68 weeks in patients with obesity or overweight, but no diabetes, taking Wegovy.
The future of GLP-1s and these US stocks
Most experts agree the runway for obesity drugs, in particular, is enormous. Novo Nordisk estimates there are 988 million adults and children globally living with obesity. On top of that, there are 483 million people living with Type 2 diabetes. (Obesity is a common precursor to Type 2 diabetes.)
The astounding effectiveness of these drugs is why both US stocks have shot the lights out in recent times.
The chart below shows the percentage growth of each US stock over the past two years. As you can see, Eli Lilly has produced better share price growth.
Eli Lilly shares closed last night at $757.64, up about 202% over the past two years.
Novo Nordisk shares closed at $121.54, up 137% over the same timeframe.
Back to the Magnificent Seven…
All of this excitement over GLP-1s is why Goldman Sachs analyst Chris Shibutani reckons Eli Lilly may be either the 8th magnificent US stock or a replacement for Tesla in the Magnificent Seven.
As reported on TipRanks, Shibutani says:
While LLY has traditionally not been discussed as part of the Mag-7 club given it's not a Tech stock, we believe it is now well-established in the narrative of companies contributing to a major technological development that could have large societal ramifications.
The analyst notes a rotational preference for Eli Lilly over the electric vehicle maker in recent times.
We note that recent price action between LLY and TSLA, for example, has been exhibiting a clear rotational preference for LLY as the increasingly favored name between these two mega-cap compounders.
This is because Tesla is "between two major growth waves". Meantime, Eli Lilly is "entering a powerful new product cycle" after the US FDA approved Zepbound in November.
He added:
It may not be surprising to see this rotation continue, in our view, as mutual-funds continue to right-size their LLY positions.
Shibutani said the US healthcare stock "screens better" than Tesla on several metrics, including valuation, stock price growth, and catalysts.
He cites studies that Eli Lilly is undertaking on obesity-related outcomes. The first study relates to sleep apnea, which is often caused by obesity.
Due in March, the results of that study will be of particular interest to Resmed CDI (ASX: RMD) investors.
Resmed, which makes CPAP machines used by sleep apnea sufferers, took a more than 30% hit to its share price last year as excitement grew over GLP-1s.
Resmed CEO Mick Farrell sought to allay investors' concerns by explaining that the total addressable market for sleep apnea was huge at 1.4 billion by 2050. But he said the company did expect GLP-1s to take away 200 million of that.
Of the 19 analysts covering the US big pharma stock on TipRanks, 16 say Eli Lilly shares are a buy. Three say hold.
Of the 34 analysts covering Tesla shares, 12 say buy, 17 say hold, and five say sell.
