Investing.com -- Moody’s (NYSE:MCO) Ratings has upgraded the issuer rating and senior unsecured notes ratings of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) to Aa3 from A1. The Prime-1 short-term rating was affirmed. Additionally, the senior unsecured shelf and the senior unsecured medium term notes program were upgraded to (P)Aa3 from (P)A1. The outlook for Eli Lilly has been revised to stable from positive.
The upgrade is based on Moody’s expectation of robust earnings growth for Eli Lilly in the coming years. This growth is anticipated to be driven by the company’s incretin portfolio, which includes Mounjaro and Zepbound. The expansion of Zepbound’s application to treat moderate-to-severe obstructive sleep apnea in obese adults in December 2024 is expected to further enhance the company’s growth prospects.
Eli Lilly’s existing portfolio, excluding incretins, also has potential growth contributors. The pharmaceutical company is expected to benefit from blockbuster products like Verzenio in oncology, Ebglyss in immunology, and Kisunla, which was approved to treat Alzheimer’s disease in July 2024. Eli Lilly’s late-stage pipeline, led by oral obesity and diabetes drug orforglipron, is set to sustain longer-term growth. Phase 3 data for orforglipron is expected to be published later in 2025.
Over the past few years, Eli Lilly has consistently increased its injectable manufacturing capacity to meet high demand. More capital investment is expected to support existing products and next generation growth opportunities such as retatrutide. The company is also anticipated to invest capital into organic R&D and external acquisitions to execute on strategic initiatives, while maintaining conservative and thoughtful financial policies with low leverage and strong free cash flow.
The Aa3 rating reflects Eli Lilly’s good scale, solid competitive position, high profit margins, and strong cash flow. Rapidly growing products like Mounjaro, Zepbound, Verzenio, Ebglyss, and Kisunla, are expected to sustain strong growth. Late-stage pipeline opportunities including orforglipron and retatrutide in diabetes/obesity have the potential to further enhance growth. Lilly is expected to maintain conservative financial policies over time.
However, Lilly’s sales are somewhat concentrated in the diabetes/metabolic category, which will continue to constitute over half of total sales. The company also faces pipeline execution risk and commercial execution risk. Like other pharmaceutical companies, Lilly is increasingly exposed to regulatory and legislative proposals that target drug pricing such as the US Inflation Reduction Act.
The stable outlook reflects Moody’s expectation for strong growth and conservative financial policies, tempered by ongoing concentration in the diabetes/metabolic therapeutic category.
Factors that could lead to an upgrade include rapid uptake of new products, successful pipeline execution, improved revenue diversity, and continuation of disciplined financial policies. If debt/EBITDA is sustained below 1.75x, this could support an upgrade. Conversely, slow growth in new products, major pipeline setbacks, or large debt-financed acquisitions could lead to a downgrade. If debt/EBITDA is sustained above 2.75x, this could result in a downgrade.
Eli Lilly, headquartered in Indianapolis, Indiana, is a global pharmaceutical company with strong market positions in diabetes and oncology. The company reported revenues of approximately $45 billion for the year ending December 31, 2024.
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