Lilly (Eli)

Intangible assets: Very strong. Lilly owns valuable brands and a deep IP estate across metabolic disease, oncology and neuroscience. Zepbound and Mounjaro have established physician and patient trust and benefit from extensive outcomes data and now an OSA label. Kisunla adds Alzheimer credibility with an approved therapy and improved dosing label.

Cost advantage and efficient scale: Strong. Gross margins exceed 80% and the company is investing billions to expand dedicated incretin capacity in the U.S. and internationally, including new facilities and site expansions, creating scale and supply security advantages that are hard to replicate quickly. Switching costs: Moderate.

GLP‑1/GIP class switching is possible, but device familiarity, insurance pathways, and clinical inertia provide some stickiness; OSA and future CV outcomes data should reinforce persistence. Network effects: Low. There is no classic network effect, though data breadth and care‑path integration improve prescribing ease over time.

Moat durability: High but not invulnerable. The primary erosion vectors are: future Medicare/IRA price pressure once small‑molecule or oral assets reach eligibility windows, competitive innovation from Novo Nordisk and others, and potential safety/tolerability ceilings for next‑gen agents.

Overall, multiple moats are present and strengthening, particularly scale and IP. Evidence: Zepbound OSA approval; Kisunla FDA and EU approvals and label update; manufacturing expansions and guidance updates.

Lilly demonstrates meaningful pricing power in the near term due to demand outstripping supply in incretins and the clinical value of weight loss and OSA improvements. However, realized U.S. prices declined modestly in Q2 2025 due to rebate dynamics even as volume surged, indicating payers remain influential.

Over longer horizons, the IRA allows Medicare to negotiate prices for high‑spend drugs after 9 years for small molecules and 13 years for biologics; tirzepatide products are peptides approved as drugs and should be outside negotiation windows until the early 2030s.

Net pricing risk rises as spend concentrates in the class, partially offset by label expansions and next‑gen differentiation (oral and triple‑agonist) that can sustain or segment premium tiers. We therefore view pricing power as solid but regulated, with volume and innovation as the primary value drivers.

Revenue is increasingly recurring and diversified across chronic therapies with very high adherence. TTM revenue through Q3 2025 is roughly 59.4 billion dollars, up sharply year over year, driven predominantly by incretin volume growth. Secular tailwinds in obesity, diabetes, and Alzheimer’s care add multi‑year demand visibility.

The main unpredictability drivers are manufacturing scale‑up timing, competitive launches, and payer policy. Nonetheless, broad geographies, multiple indications, and a pipeline with staggered catalysts (orforglipron filings by year end 2025, retatrutide Phase 3 programs, cancer and immunology adds) support a strong predictability profile.

Balance sheet is sound for a company in an aggressive build‑out phase. As of September 30, 2025: cash and equivalents 9.8 billion dollars, total debt 42.5 billion dollars, implying net debt near 32.7 billion dollars.

Trailing nine‑month operating cash flow is 13.6 billion dollars and TTM free cash flow is ~9.27 billion dollars after 6.79 billion dollars of capital expenditures, which comfortably services debt, dividends, and selective buybacks. Credit facilities are ample and the firm retains capital markets access.

Key watch items: sustained capex for capacity, acquired IPR&D outflows, and stock repurchases against investment needs.

Capital is being deployed primarily to increase supply and support R&D, which is appropriate given extraordinary demand and the need to de‑risk bottlenecks. 2024–2025 cash flows show heavy PP&E spend and multiple financings to fund pipeline and manufacturing.

The company is active in business development, completing Verve Therapeutics to expand into one‑time cardiometabolic gene editing and SiteOne Therapeutics to grow non‑opioid pain, while advancing internal metabolic and neuroscience programs.

Dividends are sizable and rising; buybacks resumed with a 15 billion dollar authorization in late 2024, with 2.6 billion dollars repurchased YTD through September 2025 and 12.4 billion dollars remaining.

We view allocation as generally rational, with the main risk being overpaying or scattering focus; thus far, deals appear modest relative to the market cap and strategic fit is coherent.

Management has executed exceptionally well on development, approvals, manufacturing scale, and payer engagement. Guidance has been raised multiple times in 2025 on the back of operational performance. The team has balanced high‑stakes Alzheimer’s launch complexities with rapid incretin expansion and pursued pragmatic BD.

Communication is transparent through detailed press releases and filings. Risks remain in orchestrating multi‑site capacity expansions and ensuring safe, tolerable dose‑titration profiles for next‑gen incretins, but execution to date supports a high score.