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ELI LILLY: THE GLP-1 DEPENDENCY TRAP

Strategic Planning Memo

June 2030 | CEO Edition

TO: Eli Lilly Leadership Team

FROM: CEO Office

RE: The Window for Pipeline Transition is Closing

Our stock is at an all-time high. Our market cap exceeds $750 billion. Wall Street loves us. Investors believe we will maintain 16%+ earnings growth indefinitely.

This is a fantasy. We have perhaps 24-30 months to prove otherwise before the market starts pricing in reality.

The Reality: - GLP-1 revenue is $20.4B in 2030 and will peak at ~$24-26B in 2032 - Generic tirzepatide will likely reach market by 2033, eroding our pricing power by 70%+ - Our non-GLP-1 pipeline has a combined peak sales estimate of $9.3B - The math: We lose $18-20B in GLP-1 revenue and gain $9.3B from pipeline = net loss of $8.7-10.7B - This implies 2035 earnings will be 35-40% lower than 2030 levels (absent new breakthroughs)

The question is not whether we need to act. The question is when and how.

THE STRATEGIC IMPERATIVE

We have three options:

Option 1: Harvest GLP-1 and Accept Decline - Maximize GLP-1 profits through 2032-2033 - Invest minimally in pipeline - Return cash to shareholders through dividends and buybacks - Ride the decline gracefully from 2033-2035 - Implication: Stock price falls to $480-520 by 2035. We are a mid-cap pharma company.

Option 2: Aggressive M&A to Replace Pipeline - Spend $40-50B acquiring therapeutic companies or acquiring pipeline assets - Hope to integrate acquisitions faster than internal development - Risk: Acquisitions of this scale have historically destroyed shareholder value - Implication: Massive integration risk for uncertain payoff

Option 3: Diversification into Adjacent Markets - Invest heavily in drug delivery innovation (injectables, oral formulations, combination therapies) - Expand GLP-1 franchise into new indications (cardiovascular, liver disease, neurological) - Build adjacent platforms in areas where Eli Lilly has structural advantage - Implication: This is most likely to succeed, but requires disciplined execution

My Recommendation: Hybrid of Option 3 + limited M&A

THE GLP-1 FRANCHISE EXTENSION STRATEGY

GLP-1 is not going away. Generics will compress margins, but the franchise has secular tail value.

GLP-1 Franchise Extension (Potential Pipeline):

  1. GLP-1 + Other Mechanisms Combinations
  2. Combine tirzepatide with other peptides (e.g., GLP-1 + GCG + GIP triple agonist)
  3. Mounjaro Combinations: Could capture 15% of market at higher pricing ($50K/year vs. current $20K)

  4. Peak sales estimate: $4.2B

  5. GLP-1 Oral Formulations

  6. Inject-to-oral conversion for patient convenience
  7. Current data: Oral efficacy is 80% of injectable

  8. Peak sales estimate: $2.8B (lower than injectables, but high margin)

  9. GLP-1 in Non-Metabolic Diseases

  10. Data emerging on GLP-1 benefit in cardiovascular, neurodegenerative, liver disease
  11. If we can prove GLP-1 benefit in Alzheimer's, this reframes the franchise value
  12. Peak sales estimate: $3.6B

Total GLP-1 franchise value by 2035: $14-16B (vs. $5-8B if we do nothing)

THE PIPELINE REVOLUTION

We need to fundamentally reimagine drug discovery.

Traditional Model (Current Status): - Discover target → validate in cell models → develop molecule → Phase I trials → Phase II → Phase III → FDA approval - Timeline: 8-12 years - Success rate: <10% - Cost: $1.5-2.5B per approved drug

New Model (Required by 2032): - Use AI to accelerate target validation and molecular design - Downsize Phase II trials using adaptive designs (test efficacy with fewer patients, faster) - Parallel track Phase II/Phase III using real-world data - Bring Phase III timelines from 2-3 years to 12-18 months - Target timeline: 5-7 years - Target cost: $800M-1.2B per approved drug

This requires: - Investment in AI infrastructure: $200M/year - Hiring of computational biologists: 150-200 PhDs - Restructuring of clinical trial operations - Partnership with academic medical centers for faster patient recruitment

Target Outcome: Bring 4-5 pipeline candidates to FDA approval by 2034 (vs. current 1-2)

THE M&A STRATEGY

Rather than mega-acquisitions, targeted acquisitions of:

  1. Biotech companies with proven Phase II efficacy in key therapeutic areas
  2. Budget: $5-8B annually for 3-4 acquisitions
  3. Focus: Alzheimer's, NASH, cardiovascular metabolic disease

  4. Expected success rate: 60% (much higher than internal development)

  5. Technology companies enabling faster clinical development

  6. Budget: $1-2B for 2-3 acquisitions
  7. Focus: Real-world data, patient recruitment, trial design optimization

Total M&A Budget: $7-10B annually through 2033

This is aggressive but manageable given our FCF generation (~$9-10B annually).

THE ORGANIZATIONAL TRANSFORMATION

By Q4 2030: - Announce new R&D strategy (AI acceleration, adaptive trials, biotech partnerships) - Hire Chief Scientific Officer from either academia or successful biotech - Begin Phase I of GLP-1 pipeline expansion (combinations, oral formulations, new indications)

By Q2 2031: - Announce first 2-3 biotech acquisitions - Launch AI-accelerated clinical development program (first cohort of trials) - Expand computational biology team by 100+ PhDs

By Q4 2031: - Demonstrate feasibility of compressed Phase II timelines (show data) - Complete integration of biotech acquisitions - Begin new guidance for 2032-2035 (more realistic, showing post-GLP-1 trajectory)

By Q4 2032: - First approved drug from new R&D model - GLP-1 generic entry starting (tirzepatide generics entering some markets) - Pipeline looks meaningfully healthier with 4+ late-stage candidates

THE FINANCIAL CASE

Current Stock Price: $950 Implied 2030 Earnings: $33.50 (28.3x multiple)

If We Execute This Plan Well: - 2033 Earnings: $42-44 (organic growth from GLP-1 + acquisitions) - 2035 Earnings: $38-40 (post-GLP-1 generic entry, but with stronger pipeline) - Fair 2035 Multiple: 22-24x (premium pharma, but not ultra-premium) - Implied 2035 Stock Price: $840-960 (roughly flat, but with dividends offsetting)

If We Do Nothing: - 2033 Earnings: $40-42 (just GLP-1 + weak pipeline) - 2035 Earnings: $22-25 (post-generic, no pipeline relief) - Fair 2035 Multiple: 16-18x (mid-cap pharma) - Implied 2035 Stock Price: $350-450 (55%+ downside)

The choice is clear. We can manage this transition gracefully with a combination of GLP-1 lifecycle management, AI-accelerated R&D, and targeted M&A. Or we can pretend the problem doesn't exist and watch shareholder value collapse in 2033-2035.

I know which path I prefer.