Lilly's Q4 Surge Highlights GLP-1 Dominance Amid Persistent Valuation Concerns

What happened

Eli Lilly reported robust Q4 2025 results with revenue up 43% to $19.3 billion and EPS increasing 51% to $7.39, driven by strong volume growth from Mounjaro and Zepbound. This performance underscores the company's leadership in the GLP-1 market, where these drugs now account for over half of total sales. However, the DeepValue report cautions that at a P/E of 53x and EV/EBITDA of 66x, the stock price already discounts sustained high growth, leaving little margin of safety. Key risks include accelerating price erosion from TrumpRx/Medicare deals, competitive pressures from Novo Nordisk's oral GLP-1s, and reliance on a concentrated product portfolio. Despite the impressive quarterly numbers, the underlying valuation and risk profile suggest that investors should remain wary of overexposure.

Implication

Investors should recognize that Lilly's growth is heavily dependent on Mounjaro and Zepbound, which face increasing pricing and competitive headwinds. The high valuation multiples imply that future growth must exceed 25% annually with stable margins, a scenario challenged by policy changes and market dynamics. Monitoring quarterly GLP-1 revenue growth versus price declines will be critical to assess if net pricing erosion outpaces volume gains. The upcoming launch of orforglipron and integration of acquisitions like Ventyx are key catalysts but carry execution risks in a crowded oral GLP-1 space. Portfolio discipline suggests trimming or avoiding new positions until either the stock price corrects to more attractive levels or fundamentals demonstrate resilience beyond current expectations.

Thesis delta

The news reinforces the DeepValue thesis that Lilly is executing well but remains overvalued, with no material shift in the investment call. It confirms the strength of the GLP-1 franchise while highlighting the need for caution due to embedded risks like price erosion and competition. Investors should maintain a cautious stance, with the thesis unchanged pending clearer signs of sustainable margin preservation.