09:19 AM EDT, 10/03/2024 (MT Newswires) -- Eli Lilly ( LLY ) is following the right approach for the obesity drugs business as it explores multiple ways to address the balance between demand and supply, according to Truist Securities.

The brokerage met with the drugmaker's new chief financial officer, Lucas Montarce, to discuss his strategy and vision for the firm in the short and long term. Montarce, who was promoted to the CFO role in September, made it clear that investment is essential for Eli Lilly ( LLY ) to see growth after 2030, Truist said in a late Wednesday client note.

The executive told Truist that the company is increasing the capacity of obesity drugs but there is "always going to be a tension between demand and supply forecast." Montarce said investors should not expect big swings in capacity and expansion, as supply constraints make it difficult to forecast short-term demand.

"On strategic choices, we believe that the company got it right with obesity (and) continues to execute on development," the brokerage said.

The CFO believes there needs to be continued investment into innovating and research and development to sustain growth, Truist said. While gross margins for most mature businesses are in the 75% to 80% range, a large pharmaceutical company that focuses on innovation is unlikely to have margins above the 40% range, according to Montarce.

On Wednesday, Eli Lilly ( LLY ) announced it will spend $4.5 billion to open a new manufacturing and development center in Indiana to support treatments from research stages through their entry into clinical trials. The facility is expected to open in late 2027.

In late August, the company launched a new, cheaper version of its weight-loss drug Zepbound to expand the product's access and meet high demand. The firm is evaluating its experimental obesity treatment orforglipron and sees "this as one of their strategies to weather competitive pressure," Truist said.

Eli Lilly ( LLY ) also aims to continue development in its oncology and immunology portfolios, Montarce told the brokerage. For the long term, the CFO believes the company is in the correct therapeutic areas and expects franchise growth to come from internal and external innovation.

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