(Bloomberg) -- Eli Lilly & Co. lowered guidance Wednesday on lackluster sales of its weight-loss drug, which posted a shocking first miss that raised questions about the seemingly insatiable demand for the shots.
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The company’s shares were down almost 8% at 1:21 pm in New York, paring earlier losses that had erased about $110 billion in market value. The stock had risen 55% this year through Tuesday’s close.
The biggest surprise in the quarter came from weight-loss drug Zepbound and diabetes drug Mounjaro, which together came in nearly $900 million below estimates.
Lilly’s success story “has been driven by demand vastly exceeding supply for its Mounjaro/Zepbound franchise, so a combined third-quarter sales miss of nearly $900 million as supply constraints begin to lift may drive major uncertainty over the outlook,” Bloomberg Intelligence analyst John Murphy said.
The Indianapolis-based drugmaker blamed the shortfall on inventory issues, saying wholesalers had a lot of drug in stock at the end of the second quarter, leading to lower third-quarter sales. That answer didn’t appease analysts, who didn’t see it coming.
“Few expected a miss to this extent,” Mizuho’s Jared Holz said. “With demand so elevated for these drugs, the destocking does come as a surprise.”
By destocking, he’s referring to the idea that wholesalers were selling existing inventory in the third quarter rather than buying and selling even more of the medicine.
Big Swings
“They’re carrying less stock than in the past,” Lilly’s Chief Executive Officer Dave Ricks said of wholesalers, in an interview after the results.
The company doesn’t foresee these types of “big swings” in inventory continuing, Lilly’s Chief Financial Officer Lucas Montarce said. “We are not expecting major changes next quarter on the inventory side.”
After raising its guidance twice this year, Lilly now expects full-year sales to top out at $46 billion, cutting $600 million from the prior upper end of its outlook.
Sales of Zepbound were $1.26 billion in the quarter, missing the $1.63 billion expected by analysts. Sales of Mounjaro, a different brand of the same drug used for diabetes, were $3.11 billion, also missing analysts’ expectations for $3.62 billion.
Analysts worry that inventory doesn’t explain everything. Demand for weight-loss drugs has been unlike anything else seen in the pharmaceutical world in recent years. Lilly and its Danish rival Novo Nordisk A/S have both struggled to produce enough to satisfy what seems to be an ever-growing market.
Novo’s American depositary receipts were up less than 1% in New York.
Both drugmakers have invested billions to boost manufacturing capacity for the shots. Ricks said Wednesday that Lilly is on track to exceed its targets.
With supply problems resolving, the idea that demand could be in question was disconcerting to analysts. Ricks tried to quell some of their concerns on a call after earnings were reported.
“Is there a demand problem here? No,” he said. Still, the company will begin marketing Zepbound directly to consumers for the first time in a bid to boost sales.
Weight-Loss Race
Obesity is one of the largest and fastest-growing areas for the pharmaceutical industry; analysts estimate the market for weight-loss treatments will reach $130 billion by 2030. Lilly’s success in the category has made it the most valuable drug company in the world.
Novo’s drugs are still in shortage, but Lilly’s efforts to boost supply are paying off. In early October, the US Food and Drug Administration said it was able to make enough Mounjaro and Zepbound to meet demand, ending a shortage that started in 2022. Weight-loss drug shortages have allowed a type of pharmacy in the US known as a “compounder” to make copies of the medicines, which telehealth companies and medical spas sell to customers for a fraction of the price.
Both companies have mounted campaigns against the copycat drugs, which they say have been found to contain impurities and, in some cases, bacterial contamination. Lilly recently began selling single-use Zepbound vials as a cheaper alternative to its shots, an option that Ricks said “thousands” of patients are utilizing.
The lower-priced compounded drugs aren’t hurting Lilly’s business, Ricks said, and the company is selling as much Zepbound as it can make. Analysts, however, are questioning whether the knockoffs are starting to eat into sales.
“We had for the longest time said, ‘Oh, you know, compounding isn’t actually impacting their business,’ but maybe it is,” BMO Capital Markets analyst Evan Seigerman said. “That’s a bigger issue that I think needs to be borne out.”
The hoops insurance companies make patients go through to get the drugs might also be causing Lilly to lose customers, Seigerman said.
As of Oct. 1, Zepbound was included on about 87% of commercial formularies and more employers are covering the medications, Lilly officials said. The company is expecting an FDA decision on Zepbound for sleep apnea later this year, which could open the door for Medicare to cover it.
Revenue from all of Lilly’s products in the third quarter was $11.4 billion, short of the $12.2 billion average estimate of analysts. Lilly’s adjusted earnings were $1.18 a share in the quarter, the drugmaker said, missing analysts’ estimates of $1.51 a share.
For the full year, Lilly now sees 2024 profit in the range of $13.02 to $13.52 a share, down from its earlier estimate of $16.10 to $16.60 a share. The company attributed the cut to a new accounting rule.
--With assistance from Antonia Mufarech.
(Updates shares, adds commentary from investor call in 13th paragraph.)
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