Eli Lilly, a prominent player in the pharmaceutical sector, faced a significant setback in its financial performance for the third quarter of the year. The company reported earnings that fell short of market expectations, leading to a steep decline in its stock price—plummeting over 12% in morning trading. This drop was exacerbated by lower-than-expected sales from two of its major treatments: the weight management drug Zepbound and the diabetes medication Mounjaro. This stark reality forced Eli Lilly to revise its full-year profit guidance downward, now projecting adjusted earnings per share between $13.02 and $13.52, a steep drop from the earlier estimation of $16.10 to $16.60.
The financial results for the quarter raised eyebrows across the investor community. Eli Lilly cited a staggering $2.8 billion charge resulting from the acquisition of Morphic Holding, a company that specializes in developing treatments for bowel diseases, as a key factor impacting its quarterly figures. Such a burden significantly affected Eli Lilly’s ability to meet its previous revenue expectations. The company has also downgraded its anticipated revenue, now forecasting between $45.4 billion and $46 billion as opposed to the earlier target of up to $46.6 billion.
Eli Lilly’s flagship products, Zepbound and Mounjaro, showed a mixed performance in the latest quarter. Zepbound, which recently marked its third quarter on the U.S. market, generated $1.26 billion in sales—a number that fell short of the anticipated $1.76 billion. This performance is particularly concerning given that the drug was expected to perform strongly following its regulatory approval nearly a year ago. On the other hand, Mounjaro yielded $3.11 billion in revenue, more than double its earnings from the previous year. However, this was still below analysts’ expectations of $3.77 billion.
The discrepancy in sales figures for both drugs has raised questions regarding their market positioning and availability. Eli Lilly has struggled with maintaining adequate supply levels to meet demand, although recent reports indicate that supply issues have begun to alleviate. According to the FDA’s drug database, all doses of Zepbound and Mounjaro are now available following a period of shortages. This improvement should theoretically provide a boost to sales moving forward, but the company’s leadership has suggested that the third-quarter sales figures were influenced more by inventory adjustments rather than supply issues.
Lilly’s CEO, David Ricks, spoke candidly about the company’s marketing approach for Zepbound, noting that plans to advertise the drug were postponed due to insufficient customer service levels. Ricks expressed a clear understanding of the frustrations experienced by consumers unable to fill their prescriptions promptly, stating that the aim was not to exacerbate these difficulties by promoting a product that customers could not readily access. Advertising efforts for Zepbound are scheduled to launch in November, a strategic shift that is expected to help drive sales as the supply chain stabilizes.
The company is also gearing up for increased production capability. Ricks articulated ambitious plans, projecting a 50% increase in production for the second half of 2024 compared to the same period in the current year. Such efforts indicate a responsive strategy to meet growing demand for these incretin-based drugs, which have been gaining traction for their effectiveness in weight management and blood sugar regulation.
The quarterly performance has not only impacted Eli Lilly but has also resonated throughout the pharmaceutical industry. Shares of Novo Nordisk, Eli Lilly’s main competitor, experienced a decline as well, highlighting the ripple effects of one company’s challenges on the broader market landscape.
One additional layer complicating the situation is the deepening contention with compounding pharmacies over the availability of cheaper alternatives to Eli Lilly’s products. Compounding pharmacies have expressed dissatisfaction with the FDA’s decision to remove tirzepatide, found in both Zepbound and Mounjaro, from its shortage list. They are advocating for a reconsideration of this decision, igniting a contentious debate within the healthcare sphere regarding the balance of innovation, access, and affordability.
Eli Lilly’s disappointing third-quarter results reflect a combination of market dynamics, strategic planning challenges, and competitive pressures. The company’s path forward will require careful navigation of these elements to realign with its growth objectives and shareholder expectations. With strategic marketing initiatives and enhanced production capabilities, Eli Lilly may find a way to regain its footing in an increasingly competitive market.