Eli Lilly recently confronted significant headwinds in its third-quarter financial results, disappointing stakeholders with earnings and revenue figures that fell below analyst expectations. The company attributed its struggles primarily to underwhelming sales of its notable weight loss medication, Zepbound, and the diabetes treatment, Mounjaro. This underperformance led to a stark reduction in the company’s full-year adjusted profit outlook, causing its stock to plummet by more than 12% during morning trading. Concurrently, shares of its leading competitor, Novo Nordisk, also took a hit, albeit to a lesser extent, reflecting broader concerns within the industry.
Eli Lilly’s revised forecast now anticipates adjusted earnings in the range of $13.02 to $13.52 per share, a notable drop from the earlier forecast of $16.10 to $16.60. Additionally, the company has revised its revenue expectations downwards, projecting sales of between $45.4 billion and $46 billion, reducing the prior guidance of up to $46.6 billion.
Several critical factors played a role in Eli Lilly’s financial results for the third quarter, including a hefty charge of $2.8 billion related to its acquisition of Morphic Holding, a company specializing in treatments for bowel diseases. This charge significantly affected the bottom line, overshadowing positive revenue growth in some areas. For the quarter ending September 30, Eli Lilly reported earnings per share of $1.18 on an adjusted basis, trailing behind Wall Street’s consensus estimate of $1.47, while revenue came in at $11.44 billion, which also lagged behind the expected $12.11 billion.
Despite the impressive growth year-over-year—20% increase in revenue compared to the previous year—Eli Lilly’s flagship products did not perform as anticipated. Zepbound garnered $1.26 billion in sales, far below analysts’ forecasts of $1.76 billion. Similarly, Mounjaro generated $3.11 billion, a remarkable leap from last year’s performance but still short of the predicted $3.77 billion. Analysts and investors alike appeared disillusioned by this disconnect between expectations and actual results.
The market dynamics surrounding Eli Lilly’s incretin drugs, particularly Zepbound and Mounjaro, have been tumultuous. The popularity of these medications has led to supply constraints due to skyrocketing demand that exceeded available quantities. However, recent reports from the Food and Drug Administration (FDA) indicate that production issues have subsided, with all doses of Zepbound and Mounjaro now reportedly available in the U.S. market. It is essential to note, however, that patients still might encounter challenges filling prescriptions, which has raised concerns about the reliability of supply.
During an interview with CNBC, Eli Lilly’s CEO David Ricks emphasized that the disappointing sales results were not primarily a consequence of supply shortages. Instead, he suggested that inventory reductions among wholesalers played a significant role. Additionally, the company chose to delay promotional activities for Zepbound in light of earlier customer service issues that created frustration among patients unable to access their medications. This decision indicates a cautious approach to marketing that prioritizes customer satisfaction while acknowledging existing supply chain complexities.
Looking ahead, Eli Lilly has expressed optimism regarding the manufacturing capabilities of its incretin drugs. The company anticipates a 50% increase in production during the latter half of 2024 compared to the same timeframe last year. This planned expansion in capacity reflects Eli Lilly’s proactive approach to addressing both current supply challenges and potential future demand surges. Additionally, the company expects even greater increases in manufacturing output by the end of 2025.
Financially, Eli Lilly reported net income of $970.3 million, translating into $1.07 per share, a substantial improvement from a net loss of $57.4 million in the previous third quarter. However, the persistent pressure from compounding pharmacies, which produce alternative versions of Eli Lilly’s popular drugs, adds another layer of complexity for the company. These pharmacies have rallied against the FDA’s decision to remove tirzepatide, the active ingredient in Zepbound and Mounjaro, from its shortage list, underscoring ongoing tensions within the pharmaceutical landscape.
While Eli Lilly is navigating turbulent waters marked by disappointing quarter results and competitive pressures, its strategic focus on expanding manufacturing and addressing supply chain issues heralds potential for a brighter future. As the company endeavors to stabilize and grow, the coming months will be critical in determining whether it can rebound from this financial dip and capitalize on the growing market for its incretin drugs.