Eli Lilly & Co. recently experienced a significant setback in its financial performance during the third quarter, as the company struggled to meet shareholder expectations concerning both profit and revenue. This decline has sparked concern among investors, particularly regarding the sales of their high-profile drugs, Zepbound and Mounjaro, critical drivers in the company’s portfolio. The outcome has not only affected Eli Lilly’s stock performance but has also raised questions about the market dynamics for diabetes and weight loss drugs.
On Wednesday, Eli Lilly reported that its adjusted earnings per share (EPS) came in at $1.18, falling short of the anticipated $1.47. Additionally, the company’s revenue of $11.44 billion was lower than the expected $12.11 billion. This underperformance led to a drastic cut in the company’s full-year adjusted profit outlook, now projecting earnings will be between $13.02 and $13.52 per share, a substantial decrease from the previous guidance of $16.10 to $16.60. This reduction has raised alarms among analysts regarding the trajectory of Eli Lilly’s financial health for the remainder of the fiscal year.
A notable factor in this downturn was a staggering $2.8 billion charge tied to the acquisition of Morphic Holding, a company focused on bowel disease treatments. This acquisition cost has overshadowed the contributions of the company’s existing drugs, revealing potential missteps in their acquisition strategies that could deter investors’ confidence moving forward.
Drug Sales: The Mixed Performance of Zepbound and Mounjaro
Sales for Zepbound and Mounjaro have been disappointing, particularly as investors had high hopes. Zepbound, which had only recently celebrated its market entry following regulatory approval, generated $1.26 billion, well shy of the $1.76 billion expected by analysts. Mounjaro, while experiencing an impressive year-over-year sales growth to $3.11 billion, still fell below expectations, as forecasts anticipated $3.77 billion in sales.
The primary challenge for Eli Lilly is the high demand for these incretin drugs—designed to help regulate blood sugar and suppress appetite—which remains unmet due to backlogs in their distribution chain. Even though the Food and Drug Administration (FDA) reports availability in the U.S. market as improving, gaps in stock levels persist, limiting the drugs’ ability to penetrate further into the consumer market.
The Supply Chain Conundrum and Future Outlook
Eli Lilly’s inability to produce sufficient inventory has raised concerns about their operational capabilities. CEO David Ricks emphasized that their recent struggles were not directly related to overall supply issues, stating that fluctuations in inventory levels among wholesalers were part of the issue. Additionally, the company decided to delay marketing efforts for Zepbound to avoid aggravating customer frustrations stemming from drug unavailability.
In conversations with shareholders and analysts, Ricks has conveyed optimism about resolving these operational bottlenecks. Zeroing in on expansion, he indicated that manufacturing output for incretin drugs is projected to increase by 50% in the latter half of 2024 compared to the previous year. Despite these convictions, the future growth trajectory remains uncertain, compounded by competition and the broader market’s fluctuations.
As Eli Lilly grapples with its internal challenges, it must also contend with external pressures, particularly from compounding pharmacies. These pharmacies have voiced their discontent following the FDA’s decision to lift a shortage designation on tirzepatide, which is integral to both Zepbound and Mounjaro. With compounding pharmacies producing cheaper alternatives to Eli Lilly’s offerings, competition is heating up. The ongoing battle against unapproved drug versions is anticipated to intensify, further complicating Eli Lilly’s capacity to maintain market share.
Moreover, the recent dip in stock prices—Eli Lilly shares plummeted by 10% premarket—reflects a broader anxiety among investors not only about the immediate financial health of the company but also its strategic directions. While the dip for Eli Lilly’s closest rival, Novo Nordisk, was noticeably less severe at around 3%, the implications of Eli Lilly’s performance resonated across the biopharmaceutical sector.
In a rapidly evolving market characterized by fierce competition and regulatory scrutiny, Eli Lilly’s recent third-quarter performance underscores the complexities the company faces. While potential for growth remains with the anticipated increases in manufacturing capacity and a focus on brand investment, the immediate challenges illustrate a pressing need for strategic focus and operational optimization. Without a decisive turnaround in supply and marketing strategies, coupled with rising competitive pressures, the path ahead for Eli Lilly will be anything but straightforward. As investors await further developments, the future of this once-unstoppable pharmaceutical giant hangs in the balance.