Eli Lilly Pours $27B Into U.S. Growth—What It Means for Investors

Key Points

• Eli Lilly, to some extent, is courting the favor of President Trump. The company plans to invest billions more in the United States to assuage tariff threats.
• What are the implications of this announcement for Lilly shares, and how did the market react?
• See the other announcement the firm made that could help minimize the threat of a potential economic downturn.

Whatever you think of Donald Trump’s tariff policies, one fact stands out: companies are looking to invest more in the United States. They want to avoid the negative impacts of tariffs on their business. One firm doing just this is Eli Lilly and Company NYSE: LLY. The firm announced it will be investing $27 billion in the U.S. to scale up its manufacturing capabilities.

Before they even went into effect on Mar. 4, Trump’s tariffs were already impacting markets. The S&P 500 Index is now down over 3% since Trump took office as of the Mar. 4 close. Some of this is attributable to tariff fears as well as weakening economic indicators. The University of Michigan Consumer Sentiment Index notably dropped to its lowest level since Nov. 2023 in February.

U.S. government bond interest rates have exhibited a largely parallel shift down across all maturities longer than two years. This means investors are demanding more bonds, signaling a flight to safety from risky assets to safe ones. Markets worry that tariffs and a less optimistic consumer could raise inflation and slow growth. This would result in a bad economic outcome. This examines how a major U.S. investment and prevailing market concerns affect Eli Lilly, the largest pharmaceutical company globally.

Lilly’s $27 Billion U.S. Expansion: A Strategic Response to Tariff Uncertainty

In its Feb. 26 press release, Lilly outlined a plan to invest an additional $27 billion in the United States over the next five years. This would bring the company’s U.S. manufacturing investment to $50 billion since 2020. Lilly will build four new manufacturing facilities. They will boost the production of Lilly’s drugs “across therapeutic areas," not just for its immensely popular weight loss and diabetes drugs. Three of these sites will be used to produce more of the active ingredients in its medicines. One will focus on making injectable pens for Mounjaro and Zepbound medications.

In addition to approved drugs, the sites will help Lilly increase capacity for pipeline drugs that aren't approved yet. This move comes just days after the President had a meeting with leading pharma executives. He warned that tariffs could soon hit these firms if they fail to relocate their manufacturing to the United States. Trump is mulling a 25% tariff on imported pharmaceuticals, among other products.

Analyzing the Market Reaction and Implications of the Lilly Announcement

On the day of the announcement, Lilly shares were up around 2%. This signals that markets were moderately supportive of this move. This is a good sign, considering large investments often cause shares to fall. Investments in manufacturing are expensive and can hurt profit margins in the medium term.

However, from Lilly’s standpoint, these investments make sense. The company recently resolved its tirzepatide shortage. Tirzepatide is the main ingredient in Mounjaro and Zepbound. Given the rabid demand for these medicines, investing in manufacturing only helps ensure a shortage won’t return. This prevents a headwind on sales growth because supply can keep up with demand.

Another reason to like this announcement is that it doesn't represent a massive change from what Lilly was already doing. With $23 billion in U.S. investment since 2020, this new announcement represents less than a $1 billion increase in investment per year for the next five years. This indicates Trump’s threats might not have unduly impacted the company. They likely weren't the only factor behind the announcement. It is possible these threats simply influenced Lilly to make this announcement faster than it otherwise would have.

Built-in Characteristics and a Price Reduction Can Help Support Lilly in a Potential Downturn

It's still unclear if the American economy is heading for an extended period of lower growth and higher inflation. This would not be great for Lilly’s business; however, it has some built-in protection. Since it sells drugs, insurance covers most of its sales. Within commercial insurance, Zepbound has an 87% coverage rate.

This means if American pocketbooks get squeezed, most will not have to demand less of the drug because their insurance covers it. For people without coverage, Lilly is also making smart moves to extend access. The company just reduced the cost of its out-of-pocket payment program for Zepbound by 9% to 29%, depending on the dosage. This can help support out-of-pocket demand if economic conditions worsen.

Despite Lilly’s high valuation, these factors bolster its investment appeal. Analysts at TD Cowen notably raised their price target to $1,050, signaling a 15% upside from the Mar. 4 closing price.