Possibly, Donald Trump's potential influence might render Eli Lilly Stock an obvious investment choice in 2025.
Eli Lilly's (LLY 1.45%) impressive growth streak, which saw it becoming the world's largest healthcare company with a whopping $860 billion market cap, came to a halt in late 2020. Over the past eight weeks, the pharma giant has experienced a significant downturn, with shares plummeting. This slide includes a recent sell-off following Lilly reducing its 2024 revenue projections due to disappointing sales of its obesity and diabetes drugs.
But could former President Donald Trump revitalize Eli Lilly's fortunes in 2025? The question seems far-fetched, yet it's not entirely implausible.
Tariff Threats and Trade Wars
During his presidential campaign, Trump famously vowed to impose high tariffs on imported goods. If he were to secure another term, he promised even steeper tariffs, aiming to hit at least 10% and up to 20% on all imports. Trump focused on some countries, particularly Denmark, for especially high tariffs, with proposals of 25% for imports from Canada and Mexico and even 60% for Chinese goods.
Tariffs lead to a spike in the prices of affected products. Higher tariffs result in higher consumer prices. While some manufacturers may absorb these increased costs, it's often the consumers who bear the brunt of the price hike.
Danish Showdown
The connection to Eli Lilly lies in Denmark, which is on Trump's hit list due to these high tariff threats. Novo Nordisk, a prominent Danish pharmaceutical company, is one of Lilly's prominent competitors in the space for obesity and diabetes drugs. Novo's leading contenders, Ozempic and Wegovy, direct competition for Lilly's Mounjaro and Zepbound, respectively. Additionally, Denmark is where most of the active ingredient in Ozempic and Wegovy is manufactured.
Novo Nordisk's stance on this potential escalation remains somewhat elusive. The company has maintained a diplomatic stance, assuring its commitment to providing life-saving medications without commenting on the possible impact on its products' prices if tariffs were to come into effect.
Could an increase in Ozempic and Wegovy prices due to tariffs boost Eli Lilly's standing? With potentially elevated demand and health insurers encouraging the use of cheaper alternatives from Lilly, the corporation could potentially profit from this price increase scenario.
Is Lilly a No-Brainer Investment in 2025?
Predicting Trump's plans and their ultimate impact on Eli Lilly's fortunes is beyond the scope of this piece. However, Lilly's future remains promising, driven by its high-demand obesity and diabetes drugs. Lilly could also potentially reveal another weight-loss pill or forglipron in early 2026 and gain traction with its Alzheimer's disease drug, Kisunla.
While Trump's tariff threats remain a wild card, the broader market conditions and the pharmaceutical industry's landscape will have far more impact on Lilly's share value than Trump's policy decisions.
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If tariffs are imposed on Danish imports, Eli Lilly might benefit from a potential price increase in its competitors' products. However, it would also face higher production and distribution costs due to higher tariffs on imported goods, which could negatively impact its profit margins. Additionally, Novo Nordisk might gain a competitive edge due to its production capabilities in Denmark, potentially eroding Lilly's market share and sales in the obesity and diabetes drugs sector. Disruptions in supply chains and increased regulatory scrutiny could further hamper Lilly's growth prospects, while the possibility of consumer backlash against higher-priced drugs could dampen demand for Eli Lilly's products.
In light of potential tariffs on Danish imports, Eli Lilly might see an increase in the prices of its competitors' obesity and diabetes drugs, potentially boosting its demand and profitability. However, higher tariffs on imported goods could also increase Lilly's production and distribution costs, negatively impacting its profit margins. Furthermore, if Novo Nordisk gains a competitive edge due to its production capabilities in Denmark, Lilly's market share and sales in this sector could be eroded.
