Eli Lilly and Company LLY

Key data

The business

Lilly sells medicines, and today it sells mostly one kind: tirzepatide, the same molecule branded Mounjaro for diabetes and Zepbound for obesity, delivered in a single-dose injector pen a patient clicks against the thigh once a week. That franchise, layered on top of older drugs like Trulicity, the cancer pill Verzenio, and the new Alzheimer's infusion Kisunla, is what turned a steady $28B company into a $65B one in four years. Patients take it, but health plans and pharmacy middlemen decide the price and who gets covered, so the real customer sits between Lilly and the person holding the pen. The moat is threefold and unusually durable: patents on tirzepatide that run into the mid-2030s, brand trust with prescribers, and years and billions of dollars of injectable-manufacturing capacity that a rival cannot stand up quickly even after a patent lapses. The whole investment case rests on how long that one molecule keeps growing before the next thing has to carry it.

The numbers

Revenue is accelerating and profit, for the first time in this run, is not keeping pace.

Sales grew 47% year over year in Q2. The inflection is Q2 2026: revenue rose $3.2B over Q1, yet net income fell to $7.1B from $7.4B, and net margin dropped to 30.9% from 37.4%. The cause was not demand but acquired research write-offs, an asset impairment and restructuring charges. This is exactly the split flagged last time, income turning down while revenue climbed, and it arrived this quarter, though on one-time charges rather than on price or volume.

Revenue nearly doubled from 2023 to 2025, about 38% a year, and diluted EPS quadrupled from $5.80 to $22.95. Two molecules did that. The first half of 2026 alone already books $42.8B of sales and $14.5B of profit, so the ramp has not stalled. What the market pays 38 times earnings for is that this continues and that margins hold. My read is that demand is not the question, the profit line is: the surprise, up or down, lives in net margin against prescription growth, and the next two quarters of that pair settle whether Q2 was a blip or a trend.

Management

The record is aggressive spending and steady selling. Insiders bought nothing over the last twelve months and sold about $35.6M across seven transactions, led by Lilly Endowment at $13.6M in May and two officers, Jonsson and Hakim, selling a combined $13.6M in August; plan status is not disclosed, so read them as ordinary trims by holders sitting on a stock up fourfold, not signals. Lilly bought back $4.1B of its own shares in 2025 and $2.4B more in early 2026, paying up at 38 times earnings, a choice that only works if growth keeps compounding. Research spending runs 18% of revenue, funding the pipeline that has to replace tirzepatide someday. Long-term debt increased 54% to $29.5B through 2024 to build capacity, but net debt sits near 1.3 times cash earnings, comfortable.

How it fails or surprises you

The margin split becomes the trend. Q2 2026 net income fell to $7.1B from $7.4B while revenue rose $3.2B, dropping net margin below 31%. The read that this is one-time charges is the memo's weakest claim; if acquired-research write-offs and impairments recur quarterly, the ramp keeps producing record sales and stagnant profit, and 38 times earnings has nothing to stand on.

Price, not just volume, cracks. Tirzepatide is close to the entire growth story. A payer formulary exclusion, a Medicare price cut, or discounting to fend off Novo's rivals would show up as realized price per prescription falling even as script counts rise. Watch the two together each quarter; the quarter price turns down is the quarter the multiple resets.

The oral pill widens the market (right tail). If orforglipron, Lilly's once-a-day GLP-1 pill, clears approval and launches into the far larger group who refuse injections, the obesity market expands rather than splits, and FY2028 consensus of $53 EPS proves conservative. The market is not fully paying for this because label and pricing are unsettled; the launch-uptake print reveals it first.

Closing thoughts

Net margin against prescription count over the next two quarters tells you which version you own. Margins holding near 37% with scripts climbing makes 38 times earnings work; margins stuck at 31% on recurring charges turns a record revenue story into a multiple cut that sales alone will not rescue. One clean quarter, one messy one, and you need a third to settle it. On balance the right tail is the fatter one, because the pill can expand the market rather than divide it, but the price already assumes a great deal, so the downside if margins stay soft is a multiple cut that a good sales number will not rescue.

The bet is still that people keep taking Mounjaro and Zepbound, and that many more start, at prices plans keep paying. What breaks it is not demand, it is the two numbers to watch together, net profit margin and the price per prescription. The quarter both slip at once is the quarter record sales stop meaning record profit.