Eli Lilly Strikes a Landmark Pricing Deal With the U.S. for Its Billion-Dollar Weight Loss Drugs. Here's What This Means for Investors.

Eli Lilly (NYSE: LLY) has seen revenue soar in recent quarters thanks to one portfolio in particular: its weight loss drugs. The company makes tirzepatide, commercialized as Mounjaro for Type 2 diabetes and as Zepbound for weight loss -- but each of these drugs has been prescribed for patients aiming to shed pounds. And they both have been in high demand.

These injectable drugs (as well as a weight loss candidate in pill form that soon may join this commercial portfolio) represent a huge growth engine for the pharmaceutical company. Just this week, though, Lilly signed a deal with President Donald Trump to lower the prices of these blockbusters. What does this mean for the company and for investors?

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Lilly's blockbuster weight loss drugs

So first, a bit of background on Lilly's blockbuster weight loss drugs. They're part of a class of drugs known as dual GIP/GLP-1 receptor agonists, and they act on hormones involved in appetite control and the management of blood sugar levels. A weekly injection of these drugs helps control these two elements, resulting in significant weight loss. Patients have rushed to get in on them as well as similar ones sold by rival Novo Nordisk -- and demand has been so high that all of these products have spent some time on the U.S. Food and Drug Administration's shortage list.

One particular hurdle for some patients, however, has been the price of these products. Medicare so far hasn't covered these drugs unless they are approved for and used for a second medical condition. So, for example, when Zepbound last year won a new approval for obesity with sleep apnea, that opened the door to Medicare coverage -- but only when those two conditions are present.

Still, tirzepatide has brought in major revenue for Lilly and actually is driving growth for the pharma giant. In the recent quarter, the weight loss portfolio spurred a 54% increase in Lilly's total revenue, and the company even increased its full-year revenue guidance thanks to this momentum. In the quarter, Mounjaro and Zepbound brought in $10 billion on a total of $17 billion in revenue.

Presidents aim to lower drug prices

Meanwhile, former President Joe Biden and current President Trump each have expressed interest in lowering the prices of these drugs -- and in recent times, Trump began negotiations with pharmaceutical companies and inked the first deal with Pfizer a few weeks ago. So, it wasn't surprising to see Lilly (and Novo Nordisk -- but here, I'll discuss just Lilly) come to the table and sign a deal this week.

Trump's agreement with Lilly involves the lowering of prices on Zepbound as well as the price of the oral weight loss drug candidate -- orforglipron -- if it's approved. This doesn't apply to people who access or will access these drugs through their commercial insurance plans, but instead applies to those on Medicare and Medicaid. The new pricing also applies to customers who will buy directly through Trump's soon-to-be-launched website, TrumpRx.gov.

Medicare patients will pay a maximum of $50 a month for Zepbound and orforglipron as of April 1, and Medicare will pay $245 for access to these drugs, according to the agreement. This is down from a list price of about $1,000, but it's important to keep in mind that insurers and patients rarely pay the full list price -- it's generally negotiated lower. And self-pay patients who go directly to Lilly for their prescriptions will pay $299 for the lowest dose and no more than $499 for other doses. This is a $50 discount to current pricing on this platform.

What the deal could mean for Lilly's revenue

Now, let's consider what this could mean for Lilly's revenue -- and eventual stock performance. First, it's important to note that Lilly didn't lower guidance following the agreement. Another key point is that this deal means Medicare now will reimburse these treatments for obesity -- this is a first and should broaden the number of patients who can access these drugs. Finally, as part of the agreement, Lilly gains a National Priority Voucher for orforglipron -- which could speed up the regulatory review -- and gains exemption from import tariffs for three years and won't face further pricing demands.

So, it's possible that this pricing deal will impact Lilly's margins, but I don't think that impact will be big. And Lilly has a lot to gain by broadening access to its drugs, potentially launching orforglipron sooner than expected, and avoiding additional costs and uncertainties such as tariffs. All of this means that the deal is positive news for Lilly -- and its shareholders -- and this pharma giant should continue to see revenue roar higher in the quarters to come.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.