Eli Lilly’s $2.8 Billion Blunder Sends Pharma Stocks Down The Tube

Wall Street’s been swooning over Eli Lilly like it’s their high school crush. The pharma company based out of Indianapolis (the one responsible for those catchy, commercial jingles on drugs like Cialis, Trulicity, and Jardiance) has had quite the 2024. 

With shares up more than 52% year-to-date, it was practically a given that Lilly would be rolling into Q3 earnings like a Morgan Wallen walking out to a concert. But instead of fireworks, Wednesday’s earnings report was more like Janet Jackson's Super Bowl fail.

So, what happened? The hype around Eli Lilly’s weight-loss shot, Zepbound, and diabetes hit, Mounjaro, did not live up to expectations (kind of like the last season of Game of Thrones). Wall Street had its sights set on Lilly posting $1.76 billion in Zepbound sales and $3.77 billion for Mounjaro. 

But the reality? Zepbound came in at an anemic $1.26 billion, while Mounjaro only managed $3.11 billion—more than half a billion short. As you can imagine, shares are taking it pretty hard, plummeting as much as 10% in premarket trading before bouncing back a little (if we can call it that). At the same time, archrival Novo Nordisk, the other GLP-1 producer, dropped 4% in premarket trading too, clearly feeling Lilly’s pain.

Turns out, demand in the U.S. outpaced supply, leading to some significant inventory decreases in the wholesaler channel. It’s kind of like showing up to a party and realizing there’s only enough Little Caesar’s pizza for half the guests. Awkward. And even though the FDA shows supply issues have started to ease, the damage for Q3 was already done.

Adding to the mess, Eli Lilly took a $2.8 billion charge related to its acquisition of Morphic Holding, a company focused on bowel disease treatment. Apparently, that little acquisition caused quite the dent in Lilly’s bottom line. As a result, they revised their full-year earnings guidance from an original $16.10-$16.60 per share to a less-than-impressive $13.02-$13.52. Revenue expectations also took a bad haircut, now projected to max out at $46 billion instead of the previous $46.6 billion.

Sadly for Novo Nordisk (Lilly’s arch-nemesis in the GLP-1 drug market) couldn’t avoid the ripple effect. With the GLP-1 craze as hot as pumpkin spice in fall, both companies have been working to meet the explosive demand for obesity and diabetes treatments. They’ve even poured billions into ramping up production to keep up with the hype. But with both companies stumbling, investors started second-guessing whether this pharma race has already peaked.

But hey, let’s not write the eulogy for Eli Lilly just yet. Both Lilly and Novo are wagering lots of $ that their GLP-1 drugs could pull double-duty as Alzheimer’s treatments. A recent study suggests that drugs targeting the GLP-1 receptor (like our underperforming friends Zepbound and Mounjaro) might reduce Alzheimer’s risk by 40-70%. If those results hold up in trials, both companies could be sitting on an enormous pile of cash.

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