Eli Lilly's New Drug Fails, Shares Drop Nearly 4%

On Tuesday, Eli Lilly and Company announced that its weight-loss drug Zepbound failed to meet Wall Street's expectations for sales in the fourth quarter. This marks the second disappointing performance for the company's stock since the drug was launched at the end of 2023. Eli Lilly's shares closed at $739.23, expected to record the largest single-day drop in nearly four years. Meanwhile, its Copenhagen-listed competitor Novo Nordisk also saw its shares fall by 3.5%.

At the beginning of 2023, Eli Lilly's stock experienced a surge as investors were generally optimistic about Zepbound's market prospects, causing the stock price to double. However, in October of last year, due to disappointing sales performance of Zepbound, the company's stock faced a steep decline and has remained sluggish. Analyst Evan Seigerman from BMO Capital Markets commented that while this estimate may not significantly impact investors, it could still affect market confidence in the demand for incretin-based therapies.

Eli Lilly had anticipated that the incremental drug market would see faster growth based on previous quarters' performance. However, as supply levels returned to normal, the company's CFO Lucas Montarce noted that wholesalers would not increase incremental inventory, including Zepbound, as they had in the past. He explained, “This year, given that all vaccines are available... that trend did not materialize. Our channel inventory levels remained basically flat compared to the third quarter.”

Eli Lilly expected fourth-quarter sales of $3.5 billion for Mounjaro and $1.9 billion for Zepbound. According to data compiled by LSEG, analysts had previously projected these two drugs would generate $5.35 billion and $2.08 billion in revenue, respectively. In October, Eli Lilly reported that the sales of these two drugs in the third quarter fell short of analysts' expectations, attributing this to wholesalers' physical and financial constraints, raising concerns about demand cooling.

Analyst Courtney Breen from Bernstein noted that the pessimistic forecast on Tuesday indicates that Eli Lilly needs to take measures to stimulate further demand. The company expects fourth-quarter sales for Mounjaro and Zepbound to fall below expectations. Additionally, Eli Lilly forecasted that sales in 2025 would be between $58 billion and $61 billion, with the midpoint exceeding analysts' expectations of $58.52 billion, thanks to Mounjaro's launch in new markets. Montarce stated that the drug will be introduced in China, India, Brazil, and Mexico for patients with obesity and Type 2 diabetes, which is on the company’s “to-do list for 2025.” However, he did not provide further details on the drug's launch in each country.

In terms of financial metrics, Eli Lilly's 12-month forward P/E ratio stands at 34.59, significantly higher than its peers Merck & Co and Pfizer, which have P/E ratios of 10.72 and 9.07, respectively.