This Drug Stock Has Crushed the S&P 500 Over the Past Decade

Sales of Eli Lilly (NYSE: LLY) Mounjaro and Zepbound have been amazing. The two GLP-1 drugs saw sales increases of 99% and 175%, respectively, in 2025. The company is at the forefront of this still-in-development drug niche. It’s no surprise that Eli Lilly stock has risen more than 1,100% in the last decade, comfortably outperforming the S&P 500 Index‘s (SNPINDEX: ^GSPC) advance of “only” 230%. Don’t rush to buy Eli Lilly; There are some risks you should consider first.

The S&P 500 Index is trading near all-time highs and its average price-to-earnings ratio is around 26 times. The average drug stock has a P/E of 23x. Eli Lilly’s P/E ratio is 39x. To be fair, a recent decline has pushed the pharmaceutical giant’s P/E below its five-year average of 56 times, making it cheaper than it has been. But it remains expensive in absolute terms and relative to other pharmaceutical companies.

Even after a sell-off in Eli Lilly stock, investors still seem to have very high expectations for the future. There are some issues to consider on that front. For example, medicines have a limited patent protection period. Once the Mounjaro and Zepbound patents expire, generics are likely to emerge, dramatically reducing Eli Lilly’s revenue from these two GLP-1 drugs. So even in the best-case scenario, Eli Lilly’s current dominance in the weight loss category will end.

Even beyond Eli Lilly’s two GLP-1 drugs, there are potential problems. The pharmaceutical sector is highly competitive. For example, Nordisk (NYSE: NVO) It beat Eli Lilly to market with a GLP-1 pill and has seen material customer demand. Pfizer (NYSE: PFE) It is also working on a long-acting version of a GLP-1 weight-loss drug. There is no guarantee that Eli Lilly can continue to maintain its leadership in the rapidly developing weight loss niche.

Notably, even Eli Lilly recognizes the risks it faces. That’s why it has been using the windfall from GLP-1’s success to acquire companies with promising drugs in other areas. That’s the right thing to do, but there’s no guarantee that the drugs Eli Lilly is adding to its portfolio will have the expected results. In fact, it is not at all unusual for medications to fail to meet expectations.

Wall Street, myopically focused on the success of the company’s GLP-1, may not fully recognize the risks ahead for Eli Lilly. This does not mean that the company has a bad business or is doing something wrong. The problem is that even a good deal can be a bad investment if you overpay for it.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

This Drug Stock Has Crushed the S&P 500 Over the Past Decade was originally published by The Motley Fool