Eli Lilly Stock on Pace for a New High. The Zepbound Maker Just Got a Big Upgrade.

Eli Lilly stock was upgraded to Outperform from Market Perform with a $1,104 price target, up from $886, at Leerink Partners. (Dreamstime)

Key Points

• Eli Lilly’s stock surged 4.8% to $969.14, set for a new record close.
• An agreement with the U.S. government lowers prices for Lilly’s GLP-1 drugs for Medicare and Medicaid beneficiaries and through an online pharmacy.
• An analyst upgraded Lilly shares, citing enhanced obesity drug adoption prospects and future drug launches despite lower pricing.

Shares of Eli Lilly have not only bounced back from last week’s lows but have also surged to new highs as Wall Street digs into the implications of the company’s deal with the U.S. government.

Lilly stock was up 4.8% at $969.14, putting it on pace for a record closing high, according to Dow Jones Market Data. The previous record close of $960.02 was set on Aug. 30, 2024.

Leerink Partners analyst David Risinger upgraded shares to Outperform from Market Perform and raised his price target to $1,104 from $886 in a note on Monday. The upgrade came on the heels of an announcement last week that Lilly struck an agreement with the U.S. government to lower the prices of its popular GLP-1 drugs, Zepbound and Mounjaro.

The drugmaker will cut prices for Medicare and Medicaid beneficiaries in the coming year and offer discounted treatments directly to consumers through an online pharmacy that the Trump administration is launching in January.

Shares sold off in the wake of the announcement, closing down 1.4% on Friday. However, the stock more than rebounded on Monday, lifted higher in part by Risinger’s bullishness.

Lilly’s deal with the Trump administration “should significantly enhance obesity drug adoption prospects and more than offset lower pricing,” the analyst wrote.

He expects to see “multiple waves of obesity treatment adoption drivers, led by significantly expanded Medicare and Medicaid access by January 2027.” Also on the horizon are the launches of orforglipron in 2027, and eloralintide and retatrutide beyond that, neither of which has a confirmed release date.

Both novel drugs are meant to be used in patients with obesity, though they have different mechanisms: Eloralintide is a once-weekly amylin receptor agonist, while retatrutide acts on three different hormone receptors.

Each new release serves to “strengthen the company’s leadership position,” Risinger wrote. He noted that Lilly estimates the Medicare agreement will add 40 million potential candidates for obesity in the U.S., which represents over four times the current 8.5 million patients on prescription obesity treatment today.

“We expect LLY to succeed in the price for volume game, given its tremendous scale advantages and growing obesity portfolio,” Risinger said.

Furthermore, lower direct-to-consumer pricing over time will help “blunt the compounder threat,” he wrote. Lilly continues to grapple with competition from compounding pharmacies that create customized versions of its popular weight-loss and diabetes drugs.

Lilly filed suit against several telehealth companies earlier this year, alleging they were selling “counterfeit and unsafe” versions of Lilly’s GLP-1 drugs without Food and Drug Administration approval.

While patient health may be a real concern, Lilly’s aggressive legal strategy indicates the company is feeling the pressure from said compounders, which have eroded market share and capitalized on shortages of Lilly’s branded drugs in the past.

Competitor Novo Nordisk , the maker of Ozempic, landed a similar agreement with the government last week. The company said it expects a “direct, negative low single-digit impact on global sales growth in 2026” as a result of the deal, while Lilly didn’t forecast a hit to revenue.

Also on Monday, Freedom Capital analyst Ilya Zubkov downgraded Lilly shares to Hold from Buy with a $950 price target, up from $750. While the drugmaker delivered “one of the strongest quarters in its history,” current valuation levels warrant a downgrade, the analyst wrote.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com