Eli Lilly (LLY) stock experienced a notable downturn recently, continuing a decline that began several months prior. This drop occurred after the pharmaceutical giant revised its sales forecasts for the fourth quarter. This article delves into the factors contributing to this stock depreciation and examines the future prospects for Eli Lilly in the competitive landscape of weight-loss and other key drug markets.
The company’s revised sales guidance projected $13.5 billion, a significant reduction of approximately $400 million from the lower end of its previous estimates. This adjustment incorporates anticipated revenues of $3.5 billion from its type 2 diabetes treatment, Mounjaro, and $1.9 billion from its anti-obesity medication, Zepbound. The market reacted negatively as all three components of Lilly’s guidance fell short of expectations, leading to an almost 7% decrease in Eli Lilly stock on January 14th. Having reached a peak of $972.53 on August 22nd, the stock has since fallen by about 23% as of late January.
Sales and Earnings Miss Expectations
Eli Lilly’s financial performance in the third quarter further contributed to investor concerns. The company’s adjusted earnings per share were $1.18, considerably below the anticipated $1.45 as per FactSet data. While sales saw a 20% increase to $11.44 billion, they also did not meet the projected $12.09 billion. Although Eli Lilly highlighted the sale of Zyprexa, a drug for schizophrenia and bipolar disorder, and noted that excluding Zyprexa sales from the previous year would show a 42% revenue increase, the core issue remained: key product sales were underperforming expectations.
Notably, sales of tirzepatide, the active ingredient in both Mounjaro and Zepbound, were disappointing. Mounjaro generated $3.11 billion in sales, marking a substantial 121% growth but falling short of the $3.77 billion forecast. Similarly, Zepbound, the highly anticipated weight-loss drug, achieved $1.26 billion in sales, also missing the Street’s estimate of $1.73 billion. The company attributed part of the third-quarter underperformance in U.S. sales to “inventory decreases in the wholesaler channel.”
Adding to the pressure, Eli Lilly’s lowered outlook for the fourth quarter prompted analysts to revise their forecasts downwards. Current projections suggest an adjusted profit of $5.30 per share and sales of $13.77 billion for the quarter. While these figures still represent significant year-over-year growth (113% earnings increase and 47% sales growth), the lowered guidance created uncertainty and negatively impacted investor sentiment, contributing to the question of “Why Is Eli Lilly Stock Down Today”.
Future Catalysts and Market Dynamics
Despite the recent stock downturn, analysts like David Risinger from Leerink Partners point to upcoming catalysts that could positively influence Eli Lilly’s stock. A significant development is Zepbound’s recent FDA approval for treating obstructive sleep apnea. This approval is expected to broaden Medicare coverage for the drug, potentially increasing its market reach and sales volume. Moreover, Eli Lilly is actively developing orforglipron, an oral obesity treatment, which analysts predict could be the first oral medication in its class to reach the market. These developments suggest future growth opportunities despite the current challenges.
Another factor that could alleviate pressure on Eli Lilly and the broader weight-loss drug market is the FDA’s recent declaration that tirzepatide is no longer in shortage. This decision means compounding pharmacies will soon be restricted from producing generic versions of Mounjaro and Zepbound, potentially channeling more of the market demand back to Eli Lilly’s branded products.
Furthermore, proposed policy changes could significantly impact the market. President Biden’s proposal to have Medicare and Medicaid cover obesity treatments could substantially increase the usage of Zepbound and Novo Nordisk’s Wegovy. However, the future of this proposal remains uncertain as it depends on the stance of the incoming administration and key figures within the Department of Health and Human Services.
Competitive Landscape and Drug Development
The market for weight-loss drugs is becoming increasingly competitive. Recent head-to-head studies have shown Eli Lilly’s Zepbound outperforming Novo Nordisk’s Wegovy in terms of weight loss percentage. Participants in these studies experienced up to 20.2% body weight reduction with Zepbound compared to 13.7% with Wegovy over 72 weeks.
However, competition is intensifying from other pharmaceutical companies. Pfizer and Viking Therapeutics have announced further testing for their obesity treatments, and Roche is also developing a weight-loss treatment, all of which have exerted downward pressure on Eli Lilly’s stock as investors consider the evolving market dynamics.
Eli Lilly is also innovating with next-generation drugs like retatrutide, a weekly injectable that targets three hormonal pathways to enhance weight loss, and orforglipron, the oral weight-loss drug. Beyond weight-loss treatments, Eli Lilly has achieved significant progress in other areas, such as the FDA approval of its Alzheimer’s drug, donanemab (Kisunla). Kisunla works by targeting and removing beta amyloid protein buildup in the brain and has shown effectiveness in slowing cognitive decline in Alzheimer’s patients. This approval diversifies Lilly’s portfolio and represents another potential revenue stream.
LLY Stock: Buy, Sell, or Hold?
The recent drop in Eli Lilly stock, prompting the question “why is Eli Lilly stock down today”, coincides with lowered sales guidance and missed earnings expectations. The stock’s failure to sustain above its 50-day moving average after the guidance cut on January 14th signals a bearish trend in the short term. The third-quarter results, particularly the underperformance of key products like Mounjaro and Zepbound, have weighed on investor confidence.
While growth remains robust, the sales figures for flagship products have fallen short of projections. The unfolding dynamics in the weight-loss drug and Alzheimer’s treatment markets will be crucial for Eli Lilly’s future stock performance. Currently, with the stock under its 50-day moving average and facing headwinds from revised guidance, Eli Lilly stock might be considered a sell for investors closely monitoring technical indicators and short-term performance. However, the long-term potential, driven by new approvals, pipeline drugs, and expanding market opportunities in obesity and Alzheimer’s treatments, suggests that Eli Lilly remains a company with significant growth prospects. Investors should closely monitor upcoming earnings reports, drug development progress, and policy changes to reassess their position on LLY stock.
