EP 021: Make America skinny again? The oral GLP-1 opportunity at Eli Lilly ($LLY)

If you want to be invested in healthcare, you want to be invested in the highest quality companies. Eli Lilly has, you know, 40 plus percent revenue growth more than that on the bottom line. No other company has has anywhere close to that. The next thing is that obesity is something that everyone understands well. I don't think people are putting their head in the sand about it. And this is a company that has shown excellent data and excellent safety in treating this epidemic. Not only that, they have a pipeline asset that's just about to enter the market, the oral, the GILT-1 that's going to grow the TAM. And then they have two or three, four other assets in their pipeline that have even better efficacy. There's a drug that they have in their pipeline that gets close to 30 percent weight loss. This is a drug that is going to significantly decrease the amount of bariatric surgeries that are happening in this country. And that type of savings is huge for this system. Welcome back to Pitch the PM. My name is Doug Garber. And today, I'm joined once again by Shryker from Critical Value Asset Management. We're going to be talking about Eli Lilly and the GILT-1 Weight Loss Landscape. You guys might remember Shryker from episode 7 when he pitched Jazz Pharmaceuticals at about $100 a share. Well, he nailed it. And the stock is now at 160 as the catalyst played out. Once again, we'll be talking about a biotech stock. This time a trillion dollar market cap name, Ticker L.L.Y. This company has a great growth trajectory with consensus earnings per share going from about $20 a share to about 50 in the next four years. This growth is on the back of GILT-1 drugs going from injectables to oral. If injectables solve the efficacy problem, oral drugs might solve the adoption problem, expanding the indressable population, lower infricient for patients, and potentially changing how these therapies are prescribed and paid for. That has big implications for penetration assumptions and long-term revenue durability for Lilly, which is already a trillion dollar market cap company. Before we jump in, I want to highlight a chart from one of our resource partners, Carbonore. They're an alternative data provider that's opening up access to data sets that have historically been very expensive, a couple hundred thousand dollars that only the large hedge funds could buy. However, they sell it on a per use case basis, which means it can be 50 to 100 bucks per data poll. So everyone can use it. The chart shows how the launch of Lilly Direct in early 2024 coincided with a sharp expansion in GILT-1 access. While at the same time introducing downward price and pressure, cross the commercially-insured market, essentially going direct to consumer for drugs, was a way to cut out the middleman and lower the cost for the end user. As manufacturer to consumer models scale and with additional access initiatives expected in 2026, the data suggests access is improving. However, competitive pricing dynamics are intensifying. There's a lot to dig into here. With that, let's get into it. Shrieker, Lilly is coming out with their oral GILH drug. What is the potential impact to the Lilly's stock? So that's a great question. The oral GILP-1 drug will expand the addressable market into the community and the broader obesity market. It should cause earnings growth to continue throughout the decade, post 2030, when some of the injectables goes off the market and should allow Lilly's stock to maintain their multiple evaluation. How much bigger is the market when it goes to oral from injectable for GILP's? Right now, about 12% of the US population has been, the US adults have been exposed to GILP-1 drugs. The current epidemiology has 40% of US adults as obese. A big reason for that penetration not being as high as it could be is one cost to the hesitancy for people not wanting to take an injection. So, increasing that penetration from 12% where it is maybe closer to the 40% is what the oral GILP-1 can do. Now, I'm not saying it'll get to 40%, but even with that, there's significant leverage in the model and huge revenue and earnings growth. What is the TAM change when you penetrate it more with a more usable drug with an oral and what is Lilly's market share and what did that potential TAM and revenue and earnings change if this drug is approved? There's about 270, 280 million US adults right now. 40% of those people are obese, clinically obese. That's about 110 million people in the US. Right now, penetration in the US is about 12% of that. The oral can expand that and multiply that by two to three times. If we say that on average of this, and we're talking about just the broad TAM, 110 million patients on average, it costs about $250 and that's probably where the net price for the oral drug will be. That's a $30 billion TAM per month. Multiply that by 12. That's $360 billion a year. Here's where healthcare investors get scared and where tech in general, investors are a lot better in terms of mindset. These are just huge numbers that healthcare investors generally don't model and since we start with bottoms up, but looking at it from kind of a top-down perspective just shows you how large this market is. Right now, Eli Lilly and Novo Nordisk have a duopoly in this market. Eli Lilly has about anywhere from a 65 to 62 thirds share of the market and that's growing. The reason is that Eli Lilly, their drug is just flat out better. Their drug has a slightly different mechanism of action than Novo Nordisk. Novo Nordisk has those M-PIC as their the famous drug and their weight loss drug is called Wendrovi. Eli Lilly's weight loss drug is called Muncharo. Weight loss for Eli Lilly's drug, you lose about 20 to 24% of your weight by a year and a half. For a Novo's drug, you lose about 15 to 17% of your weight. That's a big difference for patients. Why would someone use the Novo drug versus the Lilly drug if it has a better outcome? Right now, the biggest reason is cost. Eli Lilly and Novo have done has contracted with the big pharmaceutical benefit managers, the PVMs. There's three big PVMs that kind of rule about 80 to 90% of the market. One of them, CVS, has contracted basically exclusively with Novo and that takes about 25 to 30% of the share. That looks like it's kind of entrenched and for next year that I'm modeling and that they kind of continue that. But that's where Eli Lilly can make in ruins. And they decided standard of health and the cost benefit and that's all above board it sounds like. And they could just-- Well, again, like losing 15 to 17% of your weight is not anything that's knees at. That's a good result. If you're 300 pounds, that means you're losing 45, 50, 60, you know, around that just under 60 pounds. That's a good outcome. And you should see health benefits and everything from that as well. So it's not that their harming patients per se is just that the Lilly drug just has better data, better data, better efficacy, better tolerability. It's not saying that the Novo drug doesn't work. What's the price difference? They're basically price parity right now. Recently, if you've watched the news, you know, all the drug companies have come to the White House and touting their drug pricing deals. Right now, depending on the dose, the drugs are priced anywhere from about 200 to $450 per month. The oral drugs that are coming out will likely be priced slightly lower than that, probably 150 to $350 a month. Price competition is not really really a huge way that these people, these guys differentiate right now. Do the patients have to go through a dietician or do something natural before they're given a pharmaceutical? You know, that's very specific to each person's insurance, especially now, if you consider the ecosystem of insurance, most people on commercial insurance get insurance through their employer. Their employer can kind of pick and choose that on a menu saying, like, what do my employees need to do prior to getting these drugs? That's some employers require six to 12 months working with a dietician or, you know, working with a physician or you know, joining a gym, something like that, to work on their diet and exercise. Some don't. This is where Lily and Novo, the companies, are like diving deep into these employers and actually like trying to expand access. And the way to expand access is saying, use the GLP1 drugs in conjunction with diet and exercise. Not after diet and exercise. The way they justify that is one, you definitely see faster weight loss when patients are on the drug. And two, it's not only weight loss for heavy set, obese individuals, they have other issues. They have heart issues. They have arthritis, like knee pain. And Eli Lilly and Novo are doing clinical trials on are doing it and have done clinical trials, showing benefits and heart failure, showing benefits and osteoarthritis. These patients just have less pain and are more productive. And so it's not only the benefits on the five, 10, 15 years from now, employers could see benefits starting as soon as in 12 to 18 months where, if you have a person that has arthritis, maybe they're more productive when they don't have pain. If you have a patient that is teetering on heart failure, these drugs can delay that heart failure or even prevent that heart failure. And so you won't have to pay for a really expensive hospitalization. So that's kind of how Lilly and Novo are going at this. And there are other companies that are coming, because I think we've mentioned this before. But the average tenure of an employee at a company is now at historic lows, I think. And so these employers are just like, why am I paying thousands of dollars for this drug when they're not going to get any benefits in the near term, they might actually feel a little bit worse because they're vomiting or they've stomach upset all the time. And so why am I paying for it? And so Lilly and Novo, they have to justify it. They have to do these clinical trials. And the data that's coming out is actually really, really good on these other health outcomes. It sounds like a real win. It solves a lot of problems. Does the food industry or the processed food industry-- are they having to chip in for these high insurance costs? Because that's really what's the underlying problem here is all the processed food in American or diet versus Europe or Japan or whatever people have healthier lifestyles. Japan is a special case, I think. Their diet is much different than the rest of the world. But we consider the three kind of large markets in the world. It's the US, EU, and China. China actually has, I think, its now the latest data right here. It's something like 500 million obese patients. Oh, boy. They're saying half of adults in China and 20% of children in adolescence are obese in China. So it is an American issue, but it's also a European and Chinese issue. And I'm sure if we had good stats from other countries, we'd see that as well. But the food industry, the interesting thing from a stock perspective, early on with these GLP1 drugs, a lot of these free to lay and Pepsi and things like that. Actually, their stocks kind of went down. And the theory was that they were seeing decreased volume because of patients on GLP1. The bellies were full. They were eating less crap. They're eating less. They physically-- these people just physically cannot eat. Because what the drug basically does is it slows down the movement of food in your stomach and you feel full. Was there any data that actually showed a decrease in consumption of snack food? Or is that more of just an anticipation? Yeah, I think that was more of an anticipation. More people are just worried. You had these big, you know, cell side reports coming out where, you know, now should we cut the snack food and the soda tam by 5% or 10% rather than, you know. And so it's like issues like that. Again, I'm not a food analyst or anything like that. And so I'll defer to those people. But it's not out of the question. So let's just back up here. We have, you know, it's a trillion dollar market cap company. You're saying there's 12% penetration. It could be close to 3x that penetration. Hypothetically, if we talk about tam and we get to an oral drug, is that-- is the simple math that says 1 trillion to 3 trillion? Or how do you think about the path 1 to get approval for the oral drug and 2, the penetration and 3, the value that accrues to the shareholders and ultimately the stock? And how much is really kind of priced in? Yeah, let me start from number 1. So the regulatory path for this oral GLP1 drug. Regulatory path is seemingly very straightforward and clear. Recently, with the new administration coming on, they've introduced something called the Commissioner's National Priority Review Voucher. And these are specific drugs that the FDA Commissioner picks that have high potential that are straightforward and easy to approve. Right now, there's about 10 to think about 15 drugs on this list that have given that the commissioner, FDA commissioner, has given this voucher to. And what that entitles these companies to is an expedited review process. In general, the review process normally takes anywhere from 10 to about 12 months. With these vouchers, it's possible to get approval within as little as two months. And so that's a huge advantage for something like this. And we've seen it happen. You just mentioned the NOVO drug getting approval today. That was one of the drugs that was chosen for the Commissioner's National Priority Review Voucher. The reason that it was chosen to why I was so straightforward, that drug is already on the market at a lower dose. And so we're only approving the FDA's only approving NOVO's drug at a higher dose. And the data's already out. It's already been presented at medical meetings and peer reviewed. And so it's fairly straightforward. FDA doesn't need to reinspect manufacturing facilities. They don't have to test the drugs for stability. Lily's in a similar boat. Not exactly the same, because their oral drug isn't already on the market. So it's a new drug that's coming out on the market. So it's reasonable for it to take longer than NOVO's drug. They were both given the prior review voucher at the same time during the White House event that happened earlier in the fall. And so it's possible that Lily's drug could get approved as early as January. And the latest, I would assume, it gets approved to sometime in late second quarter. Again, huge TAM big impact for Lily's near term. And if they're able to pull forward revenues, that pulls forward EPS. And they're able to get significant leverage on their P&L. What is the stock due of NOVO when this was approved? Yeah, NOVO stock-- I mean, NOVO stock is up. I think last I looked about 9%. So a significant bump in the stock. Now, I'm negative on NOVO just because I think this market will kind of end up being dominated by Lily. And then NOVO will see their share eroded by other competitors coming. Lily have the same competitive forces? Yeah, so I thought about this a lot. And a good analog for this market is the Botox market. So Botox is a medication, first of all, right? It's a drug. But healthcare investors kind of view that as more of a consumer-based market, consumer-driven market. Similarly, obesity, I think, will end up in the market. Botox is for cosmetic versus through insurance for medical reasons. Yeah, so it's about half and half. And Botox is about, I think, a $4 billion drug for Abby. About half of it is for medical purposes, like muscle spasms, hyperhydrosis where you sweat a lot. The other half is for the cosmetic and aesthetic. Botox currently has about a 55% to 65% share. It's hard to capture exact share because we do this through surveys. But Botox, remember, has been on the market for almost 30 years now. There's four or five other competitors on the market, and they're splitting up the rest of it. Plus now, what Botox has that's great is that Botox is kind of like Kleenex. It's kind of like Xerox, right? And so-- --hope this isn't such a good thing anymore, but I hear you. They've got a brand. And I think Lily will get there. Right now, I'd say Nobo actually has the lead in the brand. More people know Ozempic than they know Lily's Muncharo, right? I mean, Ozempik was mentioned, you know, on Super Bowl commercials, it was mentioned by Jimmy Kimmel at the Oscars a couple of years ago. So people know that brand a little bit better, but as as efficacy gets more important, Lily, I think we'll start to take that. So my and also Lily already has this two-thirds share. So my point is I think on Onnovo, I think that they're going to be one of the four to six players that are kind of fighting over the other one third of the market. And Lily based on their efficacy, based on their breadth of their portfolio, because it's not only Oral GLP1 for Lily, they have the injectable like we talked about, they have other mechanisms of action that are coming that that are start cause a more gentle weight loss. And so they have a whole machine behind them. Novo has kind of dropped the ball in that where all they have right now is this Wigovi GLP1. They tried to purchase something else, but actually there was a fight between them and Pfizer and Pfizer won the acquisition for this company called Mitzsera. One of the core pillars of the deep research we do is field research and using expert networks. I always start with AlphaSense. They have a great expert library and they also have AI technology that allows me to get to the information a lot quicker. They allow me to access local periodicals and uncover information that I otherwise wouldn't have access to. They are used by 75% of the world's top hedge funds and 85% of the SMP 100. Not only do you have access to the library, but they'll also go find experts for you based on what you're looking for. It is one of my go-to ways to do primary research. Make sure to check it out with the link in our show notes. What percent of Eli Lilly's current revenue or free cash flow comes from GPL? And then the second part of that is how does that change what's the actual growth after the once the oral drug is layered in? Yeah, so right now it's about two-thirds of their revenue base is in the GLP1 kind of diabetes overall franchise. That's going to grow. That's going to go to three quarters. Next year, I have $80 billion approximately for 2026 revenues and about $60 billion of that amountling as just their obesity diabetes franchise. So they have $20 billion in oncology, neurology, and that's kind of growing at a decent clip, but not the main driver of growth. There's the $60 billion. How much of that number is from the oral versus the injectable and then how big is the oral another $60 billion on top of that? So is it going to 120? How do you think about that? Yeah, so in 2026, definitely not. I model just under a billion and a half for the oral and the rest of it, 55 billion plus is going to be in the injectable. Now moving forward, that's going to change. That's going to get to about two-thirds injectable and one-third oral. That's kind of how I see it growing to the GLP1 franchise, including diabetes plus obesity in this number, gets anywhere from $80 to $90 billion. Is there any kind of realization? If you're taking an injectable, I'll just take the pill. It's going to be easier. You're saying it's going from 60 to 80 to 90, that's 50% growth, but you're also telling me the market share of the penetration is 12% at a point of 40. So you're really saying that 12% goes to 18%? Something like that. Yeah, so the issue with with this is that so one, the oral is a higher margin. In general, just oral drugs have a margin anywhere from like 95 to even 99%. So margins are going to be high. Lily pays a royalty on this on this drug. They pay a royalty to a Japanese company called Chugai. It's a tiered royalty from mid-single digits all the way to low teens. So on average, it's probably like a 10% royalty. Why do they pay that? Were they the developers of it? Yeah, so they licensed it. The original company that developed the drug is this Japanese company called Chugai. They Lily licensed it from them for the upfront wasn't huge, but the royalty makes it worth it. It's a tiered royalty that's undisclosed what the tiers tiers are. So on average, the way I model it is 10% royalty. And they did that because they had the technology, but they weren't the ones to bring it to market, get it approved, and do the commercialization of it. Correct. Yeah. So it's a pretty typical arrangement that Lily has with what you got. A lot of these large pharma companies don't do the early bench work. Right. And so you see these inventors, these universities, these smaller biotechs take an upfront fee and give them a clinical stage ready asset and say, hey, you take this, we'll take whatever it is, $100 million, $200 million, $1 billion up front, and take a small royalty on the back end. It's worth it for Lily because they have a drug that they know works and they have some data. Plus, it's significant leverage for them that they just layer on top of their incremental SGNA isn't that high. Now R&D in the early stages is pretty high for these obesity drugs. These are enormous trials, thousands of patients in these trials for several years. And the clinical program for these obesity and diabetes can cost anywhere from 500 million to a billion dollars in total. Wow. And that's what Lily has to absorb that cost after they have, okay. Yeah. So talk to me about what's priced in. We're talking about an increase from 12% share, 12% penetration to 18% as we add the oral drug. We're talking about revenue go in from call up 50 to 60 to 80 to 90 for this segment of Lily's business. What does that mean for the stock? Yeah. So right now, Lily at around 1100 is 45 times 2025 EPS. And about 33 times consensus 20 to 2026 EPS. Setting the stage, Lily is number one, the highest quality large cap name globally. If you just look at their growth, the revenue growth for them is expected to be in 2025, it's over 40% again on a huge base, 45, 45 billion dollar base. It's expected to be over 23% in 2026. Again, a 64 billion dollar base, you're getting a huge growth. You're not getting this growth from any other type of company. How many years of this revenue growth are we getting from this drug? Like what's next? All right. You go from 60 to 90, but anywhere at 33 PE. The way I model it, I model about 42% growth coming out of 2025, 23% growth in 2026 on modest assumptions for for or for libron, 20% growth, 2027, 15% growth in 2028. And it kind of tapers down 10% growth and 5% growth after that. Where's your EPS shake out on a halt in normalized basis? You're right, this gets approved. They penetrate the market. What's our normal EPS and what's the stock worth on that basis? Yeah. So right now, like as I said, it's trading at about 45 times 2025 EPS. Next year, around it's trading at about 33 times 2026 EPS. So multiple is continued to compress. I have 25% EPS growth from 26 to 27, about 20% growth from 27 to 28, and then about 13% growth from 28 to 29. All on modest numbers. And I think the reason why there's upside to even my numbers is that we still don't understand the leverage that these drones are going to provide. If I look at my operating expenses, I'm still assuming healthy growth on an absolute basis. So let me be more specific actually. So in 2025, I model in about 11.1 billion dollars in SGNA. 2026, I model about 13 billion. I'm in line with consensus. 2027, I'm at 15 billion. So we're talking about incremental growth, basically on par, slightly, slightly below revenue growth. The question is, and the hardest part always to model is how much of that incremental SGNA growth is necessary for this? They already have an established sales force. They already have a plan in which how much they're promoting these drugs. Most likely, they're not going to have to hire additional manpower to sell the drugs. So do I even need to increase SGNA by 2, 3 billion a year? If I don't, if I cut that in half, earnings power, and that flows basically directly to the bottom line. SGNA R&D is kind of the same thing, right? A lot of these large-scale clinical trials. I talked about 500 to a billion dollars to get some of these drugs to market. A lot of these large-scale clinical trials are rolling off. We know that it works in diabetes and they've done a huge trial. We know that it lowers weight and obese patients in the use and they've done a huge trial. Now the next steps are kind of going to these incremental pharmacoeconomic clinical trials. Again, going back to proving to insurers that, "Hey, these patients are going to have less pain in their knees. These patients are going to experience less hospitalizations for heart failure. These patients are just going to feel better. These are trials that don't need to be tens of thousands of patients. They're much smaller. The incremental R&D spend might not be the same. I'm still modeling significant growth. This year I have 13.4 billion in R&D spend. Next year I have 15.6. The year after that 18. That's where I think that leverage could really come from. Where operating expenses can, I don't want to say flat line, but they can grow much, much slower than revenue. That's where upside to mind numbers can come and upside to definitely consensus numbers can come. Where are you versus these senses? You're describing a path where essentially a 20% grow or going from, you know, 13 bucks in 24 earnings to mid 20s and 25, but it can still double in the next four or five years to over 50 bucks a share of earnings. Where are you versus that ramp that consensus has? Where's your, I guess, 29 number for EPS or normal? My 2029 number is closer to 60 than consensus is. Consensus is around 52. I'm at like 56 to 57 right now. That's where I think it is because if you look at that type of growth and, you know, this is lazy, but I mean, like that's less than 20 times what it is right now. And that's an unfair multiple to what it should be. It should be much higher than that. So you're essentially saying, what's the, you're above the street, you're being confused. You're above the street for 29. You're at 58 bucks in streets of 53. So call that five, you know, almost 10% variance on 29. What's the key number that the street is queuing off? Is it that EPS? Is it the 80 90 billion of revenue for this drug? What's the target KPI and what year? I think it's it's two right? Like the street needs to see revenue growth. The street needs to see that. And I think like in the very near term, the guidance that Lily is going to put out in early in early January that the JP Morgan conference is going to be very important, especially on the top line. The biggest lever for that guidance again is or focal abroad and when it could launch, when it could, when it, when it could hit the market, which is why I think in the, in the near term, Lily might be a little noisy. There might be a buying opportunity if revenue, revenue guidance comes in slightly below consensus, given the uncertainty around a launch in, you know, January versus a launch in June. And so that's that's where in the near term, it's revenue in the longer term, it's earnings power. We don't want to see this get to that, you know, 35, 45, 55 EPS over the next several years. And that that will bring down the multiple. Again, no other company in our, in our space, in my space is traded. No other large cap is traded at this multiple. And again, as we talked about before, that's where I think the generalist and tech investors are more comfortable with this sort of stuff because this is more of a, a tam story and penetration versus a clinical trial type of, you know, lever. This is essentially AI of the healthcare space. This is the new video. This is the unprecedented growth where companies going from small-ish drugs to, you know, 10, 20-bagger game changer and sending the impact on the population as well. Everyone's the side. There, right now there is no other indication that has this large of a tam. There's just no other indication. You mentioned that there's, this is a classic where, hey, near term, there could be a time-in mismatch on the revenue. We're not sure when it approves. It could be a little downside if they guide for the year. Long-term, this is the best story. And this is just like the time-in noise. This is a classic example near term. We're not seeing it, but long-term trust us. What is the company normally do in terms of communication and guidance on both an annual and a normalized or multi-year mid-term basis? What have they said or that's usually what the boat is. Consensus is usually what management says. Then they need to continue to beat their slow-pop boards. That's the game we play. Yep. Yeah. So, Lillia'd say is probably one of the best companies in terms of, in the, more recent terms in terms of managing expectations. Let me go back to 2024. 2024 is kind of when this obesity wave first started. We didn't really understand how big it truly could be. And Lillia and Novo themselves didn't understand that either because they didn't even manufacture enough drug to satisfy the market. And so, when Lillia Novo gave guidance back in 2024, they missed several times and Lillia actually reduced guidance multiple times during 2024. One because they didn't know the market. They didn't know how big it was going to be. And then two, they didn't manufacture enough to satisfy that demand. 2025, Lillia, especially, Novo, not really, but Lillia especially fixed that. It seems like they got a better grasp of the market. They guided, they had beats and raises and consensus followed. And if you look at the stock price, that's kind of how it went. Lillia was down in the first half due to the macro issues. But if you look at the second half, Lillia was as low as in the 600s. And now it's at 1100. So, it's had a huge, huge run since the low. And so, it seems like they have a better grasp of the market. The other thing too with this Orfa Blipron, they've told us repeatedly that the last figure that they said that they've already manufactured at risk $5 billion worth of product. Already manufactured at risk. Remember, consensus this year is at a billion and a half. So, at the very least, they'll be able to satisfy the demand that consensus expects. Longer term, they haven't given us like discrete numbers as to how big. They just keep saying that this is the large market. It's unprecedented. And they have the same kind of information that that healthcare investors have. Over the last three months, the forward consensus revisions have ticked up. Call it for December 27. It's gone from 3675 to 40 on fax set here. Most of the years have gone up about three bucks. What has happened to give investors or cause the sell side to raise their expectations over the last three months? As the company said something, I guess, is it the NOVO release? I guess that just happened last week or yesterday? Why have numbers been going up? Is that why the stock has gone up here recently? A few things. So, one, both Lily NOVO in the, during that period, have put out more good data. They put out the key data that Lily has put out is that they've showed that being on these drugs decreases mortality by about 20%. So, hands down that is an excellent, excellent outcome. To access was a huge issue. These drugs, they came out with price tags of anywhere from a thousand to like $1,300 a month. The federal government, the Trump administration has put pressure on these companies to lower prices. So, Lily NOVO both have come out with direct to consumer channels. They're Lily NOVO are able to sell directly to patients now at much, much lower prices at $350 to $450. Are they going around the PBMs in this point? They're going around this whole cellar here. They are. So, the the preferred way the PBMs work is, Lily sets that list price of $1,300. In order for the PBMs to pay for it, they say that Lily needs to pay a rebate per patient to these PBMs. That rebate for these, this class of drugs is anywhere from like 50 to 65%. And so, the PBMs are getting anywhere from you know, $600 to $700, $800 rebate per patient and they're passing the rest of that cost on to the employer. The tough part is that for patients that one that their employer doesn't cover it or two, they don't have have insurance at all, they still have to pay that $1300 list price. What Lily has done, and Nobo has done, is basically said that, look, we're giving this rebate to insurers. We're going to go directly to patients that don't have insurance or don't have proper coverage. And we're going to give the kind of the same price to them. And so that is open to backstress. The other thing that that's helped is that this TrumpRx system that they've negotiated with the Trump administration opens up the Medicare population. Medicare is the federal government health insurance population that covers patients above the age of 65. Previously, Medicare didn't recognize obesity as a condition to treat. And so now this opens that up. That's another about 30 million patients. And again, if you say that 30 million patients in the US, getting rough numbers, say about 40% of them are obese. That's 12 million patients that should have this drug at very low cost to them. So that opens up a huge tab to them. So numbers increased because of that. The tab has increased, and the clinical data is just so much better. The other thing, too, is this commissioner's national priority review vature, expedited review. And so people are expecting approval earlier than what previously was even thought of possible. A big thank you to Street Account by FACSET for helping in the research process for these episodes. I've been a big fan of this product since it came out many years ago. It's a staple in my process and serves as the top of funnel for all names on my watch list. I just enter the ticker, and I'm instantly in the flow. For all key news flow, allowing me to ramp up on the name while I manage the rest of my book. And I also use it to monitor customers and competitors for names that I have in the book. They also have value added analysis in their earnings summaries with historical valuation, and they report consensus earnings revision, which saves me a lot of time on gauging what level to add to a position or not. Their Gen-AI tool, Mercury, is Cut in Edge, and provides access to one of the largest databases for top tier analysis. You should definitely check it out. And I assume with the NOVO approval, lily-ply trades off people and get their expectations a little bit higher that this is common. They buy this in anticipation. You also mentioned the price in the list price is 1,300, but they're really selling it for 3,350. And then if you don't have insurance, you're still able to get it for 3,350, which is essentially the right thing to do anyway. How has overall administration and the war on drug prices has there been across the board reduction from that 3,50 become in 250? Or it's just like, hey, we're going to help you uninsure, you get the same fair price that they get if they had insurance. What has hit the bottom line and hit revenues for pharma companies has been-- they've actually the Biden administration in the Inflation Reduction Act actually redesigned Medicare Part D to have drug companies share more in the cost of drugs. After it hits a certain point, what's termed as the catastrophic phase after patients have to pay more than a certain amount for drugs, and they've increased their share to that. So that's been a negative actually from the Biden administration, and that's brought down numbers slightly. On a growth basis, it's brought down numbers in general about the mid-single digits for a cross-large-cap pharma, but growth in general for most of them has kind of outpaced that. And so you're still seeing slight revenue growth overall for large-cap pharma. The TrumpRX negotiations has been more optically-- in essence, it hasn't really impacted numbers. It's PR. I mean, Bristol-Marsquib, at the latest press conference on drug pricing with the President Trump, told everyone that they're giving away this blood thinner that they have, eloquence, for free to the federal government. For free to the federal government. Awesome, great. Like awesome. It's a drug that saves lives. That's great. Here's a rub. That drug goes off patent in 2026. So revenues were going to fall off a cliff anyway for that drug. The other thing, too, is that the bulk of the drug that they currently supply to the federal government, they were already giving away for free. And so it's basically nothing on their affecting numbers at all. And I can go through other examples where this is having a Giliad is a huge player in HIV. They give away a ton of their drug for free and President Trump touted huge price reductions on that. And so it's PR. If people like it, and if it gains them some favor, then that's fine. But in actuality, these things just haven't been impactful for the American people. They haven't been impactful on pharma companies. And there's just been a fun press conference. So to sum up this thesis, the socks doing about $22, $23 of earnings in this year. In a few years, it has potential to be doing $50, $60 of earnings. And it's trained at 33 times forward PE. And the drug continues to gain clinical success, show benefits, and about to hit a milestone to get the oral approval, which will increase the penetration. And that's essentially the thesis, the thing is, the stocks run. It's not new news. How long have you owned this stock and what's your target? Own this for a while. So target, I think, is around 1,400. I think multiple compression, at least next year, shouldn't have, into the extent that it's projected by consensus, given the growth, given that this is the best house in a mediocre neighborhood admittedly. What's your mediocre name? So health care in general? I'm talking about large-cap pharma and biotech. Why is that? In general, I think neighborhood. That neighborhood. So if you think of companies like J&J, Bristol, Advie, Roche, Novartis, AstraZeneca, BlackSosmith, Klein, those are his peers. And so all of most of the other companies that are in this set either have huge patent cliffs looming or have growth kind of stalling because they are in relatively lower growth segments. And then they also are just not-- are difficult to understand. Misting class growth, drug has momentum. What's the other side of the bet? Where could you be wrong? What would happen? What would be your downside target? And your side post would be like, oh, I got this wrong. I need to get out. And then if you could humor me and just give a probability to your upside and your downside. Yeah. So there is a possible downside, right? This is a highly, high multiple stock with high growth. If growth stops, if growth slows down, I think that's a huge issue. The way that growth stops for this is that one, there's more payer issues with this. They're unable to kind of expand that tam like the thesis necessitates. And two competitors that are coming, competitors that are two, three years out, come in as a low cost saying, look, I don't need 98% gross margins on my oral. I can live with 90% gross margins. That'll cut the costs significantly. And if there's a price war, that's a huge issue. Right now, given that it's dominated by Lily and Novo, it's a duopoly. Both of these companies are rationally acting in terms of prices. There isn't this huge price war that's happening. If there is a price war that happens in the near term, that's going to hurt Lily. In the long term, that's going to crush competitors. Given that, I think that this is more akin to a consumer market, you need to spend money. You need to promote your drug. And so if margins compress significantly, there's just not enough money to spend on DTC advertising, then I think the newer competitors will suffer. Because patients right now and-- you know, the people in general, trust that the lilies physicians, trust that lilies drug, one works, they know the safety profile and so there's less mystery about it. Other drugs that come out, there's always that risk of safety and it just doesn't work as well. And so the other side of the bed is definitely growth slowing in this market. You know, I see this is, look at the Holders list and this is the who's who of top quality, you know, capital, fidelity, Wellington, T-Row, you know, and I see low short interest too. Is this a consensus long? Is everyone the long-only see this is the best growth in large cap for my exposure? The hedge funds are piled in for the catalyst. I mean, is this a, what do you call it a consensus long or is this your noise? I'd say it is a consensus long. The issue is fund flows are still low into healthcare. If you look at the percentage of the weight of the healthcare in S&P 500, it's still at relatives like historic lows in the mid to high single digits. If that gets back up to where it historically was and you know, in the 10 to 12 percent range, that's a huge, huge amount of capital that comes in. And where that capital is going to come in, my thesis is that it's going to come into the highest quality name with the best growth and the easiest to explain story. How would you sum up your thesis in called an elevator pitch before we conclude here? I think it's just that. Eli Lilly has 40 plus percent revenue growth. More than that on the bottom line, no other company has anywhere close to that that can be that can be that's investible for a large asset manager. The other thing, the next thing is that obesity is something that everyone understands well. We know it's a problem and I don't think people are putting their head in the sand about it. And this is a company that has shown excellent data and excellent safety in this epidemic and treating this epidemic. Not only that, they have a pipeline asset that's just about to enter the market, the oral, which is one that's going to grow the tam. And then they have two or three or four other assets in their pipeline that have even better efficacy that even more weight loss. And that type of savings is huge for the system. I also wanted to recap. You were here with us about five, six months ago talking about jazz. And could you give us a recap of what happened there, where the stock was when you pitched it, where it is today, the relative out performance, and also what happened in that thesis to get it from where it was to where it is now. Yeah, thanks for having me back on, Doug. So jazz has worked out for us. When I talk to you about it, jazz was somewhere between 110 and 120 in that range. It's about 170 today. The thesis back then was based on jazz pharmaceuticals as a company with a stable revenue base of about four billion dollars. And they have this clinical catalyst that's coming in a cancer indication that has a huge unmet need. And that cancer indication is a gastroesophageal adenocarcinoma. Just for reference, I'll say GEA. GEA is a pretty common cancer. It's the fifth most common cancer worldwide. So not a small indication within cancers. And about 20% of those patients that get GEA would be eligible for this drug, because it's based on a certain mutation that these cancers have to have. Data was going to come in the second or third quarter type of range. Data came. Jazz released positive top line data, and the stock subsequently pops to about 170. What they did do though, they didn't release the full data. So all they did was they qualitatively said that this could be the new standard of care. Let me give you the exact language. Jazz said that this has the potential to become the new standard of care. It's really important to parse their words and to examine their words in these press releases, they also said that it demonstrated highly statistically significant and clinically meaningful improvements in progression-free survival compared to the control arm. So all positive and all kind of came in line with my thesis. The reason why I don't think it made its full move and the full move is I think it can get to around $200. And of note that this is a company that is EPS of about $22 per share. So not a heroic evaluation to get to $200. The full data is coming out the second week of January. And so they're going to be presenting this at a major medical conference. And so when we see the full data which I expect based on their language, I expect to be better than the current standard of care. I think that move, Jazz continues to grind up as people say that, hey, this is a large indication. This could revolutionize kind of how they have their revenue base and close that valuation gap that I have just for reference. Now I think that just this indication alone could be anywhere from $1.2 to $1.5 billion at peak sales for them. And that's hugely consequential on a $4 billion revenue base. There's the stock has gone up from call it 110 now to 170. You have a target of called 200. Market starts a price in some of this data as they have had releases. One more releases coming in January. How have you changed your portfolio waiting to account for I guess the natural growth in the size of the position as it's gone up? Have you managed that? Jazz ran up going into the data. And I think taking some off the table, booking some gains, given that this was a significant binary event. The risk profile changed significantly from 110 to around 130, 140 because I thought the downside was all the way to 90. And now at 140, if the upside, I think just on that move was, I said 180 that then, that completely changes the risk benefit. So going into the data and as it ran up, I maintained it as a 3% position. I trimmed slightly. And then now it's around a 5% position, though I did book some gains as it increased. So it's a 5% position, but you've actually reduced the number of shares just because it's gone up so much. But now it's a large position, but you're you're 70-80% of the way to your target. Right. And I think the valuation floor changed. So the up down is no longer 90. And we know that this drug is now approval, I think. I think like that's what I can, I'm assuming that this drug is approval in this indication. And so they're going to be on the market in this indication. Now the levers on the indication, the upside comes from how good is this data really. These drugs are super expensive, right? They're approximately $20,000 per dose. So if you think of the difference between drug working for eight months versus the drug working for 12 months, it's huge in the model. And so if the number comes back, which I think it should come back around 12 months versus standard of care is less than eight months, that's that's a huge difference in terms of how long patients are on drug. And so that's where the model can get can get left. How do you get your view that the standard of care could be 20 months versus eight months today? Because that's your very view to why you stay in the stock and have more upside in revenue. How do you come to that conclusion? Are you just on the expert network till that? Well, I mean, that's part of it, right? You have to talk to these experts. I'm definitely not, you know, as well. The experts are also using who do you use for expert network? Yeah, Alphacense, TIGIS, GLG, and you know, God, right? Those are those are various networks that we use. Again, like I used to be a practitioner and so like I have colleagues that I could talk to friends that I could talk to and utilize them as well. Expert networks outside of the paper call or the libraries. You got your own network. You are your own edge. Correct. Yeah, I mean, I think that's what really helps me, right? Like it's being able to quickly text someone and say, hey, like what do you think about this just to get a quick view of things and never get non-public information, but getting opinions on things is important to the process. I'll say that. It's not going to be an end-to-end. I think that's it. You have the right to win. You've built your network over a decade. And you've got that specialized knowledge, it's like all the right to win. And that's the difference here. And I have those conviction in your bearing view, is because you are a practitioner. And that's very powerful, especially in biotechnics, which is super niche, but also super profitable. Yeah. Well, Shrieker, thank you for coming on again. I am the host of "Pitch the PM." Nothing on the show is investment advice. It's for educational purposes only. I do not have any positions in the securities discussed. Jazz or lily. It's outside of my circle of competence. Although I definitely wish I listened to Shrieker back when he pitched me jazz at about 110 bucks. Shrieker does have positions and they may change. And he might not tell you in the future. So make sure to talk to your financial advisor. Thank you. Please make sure to follow "Pitch the PM" on your favorite podcast app and never miss out on episodes. This show is for entertainment purposes only. Please consult a professional before making any decisions. This show is copyrighted by "Pitch the PM." Written permission must be granted before re-barked asking.