Eli Lilly's Earnings Triumph Turned to Tears: GLP-1 Dominance vs. PBM Power Play

The market’s love affair with Eli Lilly (LLY) hit a rough patch this week, despite the pharma giant delivering a Q1 earnings report that beat expectations on all fronts. Investors sent shares plummeting over 11% after hours—not because of bad news, but because of the looming shadow of pharmacy benefit managers (PBMs) and a critical pipeline pivot. Let’s dissect this roller coaster ride.

The Earnings Surprise That Wasn’t a Surprise

Eli Lilly’s Q1 results were a textbook example of “good news, bad news.” Adjusted EPS hit $3.34, blowing past the $3.10 estimate, while revenue rose to $12.73 billion, edging out forecasts. The star performers? Its GLP-1 drugs: Mounjaro and Zepbound combined for $6.1 billion in sales—nearly half of total revenue.

But here’s where the plot twists: CVS Health, one of the largest PBMs in the U.S., announced it would exclude Zepbound from its formulary starting July 1, favoring Novo Nordisk’s Wegovy instead. This move struck at the heart of Lilly’s weight-loss drug strategy. CEO David Ricks dismissed it as a “last-decade” PBM tactic, but the market didn’t care.

The Zepbound Setback: PBM Power Plays and Pipeline Pressures

CVS’s decision is a microcosm of a broader industry shift. PBMs are leveraging their clout to dictate drug choices, often prioritizing cheaper alternatives—even if they’re less effective. For Lilly, losing Zepbound’s formulary coverage could erode its 354% year-over-year prescription surge in weight-loss drugs. Meanwhile, Novo’s Ozempic still holds a 43% market share in diabetes treatments versus Mounjaro’s 39%, underscoring fierce competition.

But the real drama lies in Lilly’s 2025 EPS guidance cut. The company now expects EPS between $20.17 and $21.67, down from prior projections, due to $1.57 billion in R&D charges and equity investment losses. This raised red flags about cash flow sustainability, even as revenue guidance held steady.

The Orforglipron Opportunity: Betting on the Next Gen

Lilly isn’t panicking. Ricks doubled down on the company’s next-gen therapies, like the oral GLP-1 candidate orforglipron, which could bypass the injectable limitations of current drugs. Phase III data for orforglipron showed statistically significant results in treating Type 2 diabetes and obesity, positioning it as a potential blockbuster.

The CEO also highlighted a $27 billion U.S. manufacturing investment to insulate supply chains from tariffs and geopolitical risks. This long-term bet signals confidence in Lilly’s ability to dominate GLP-1 innovation—if it can navigate PBM headwinds.

Conclusion: Hold the Course—or Batten Down the Hatches?

Eli Lilly is at a crossroads. The $998 analyst price target implies an 11% upside from recent lows, while GuruFocus’ $1,125 valuation suggests even more potential. But investors must weigh two realities:

1. Near-term pain: PBM negotiations, supply chain risks, and regulatory hurdles (like the FDA’s tirzepatide heart failure trial demands) could keep pressure on margins.
2. Long-term promise: Orforglipron’s oral form, combined with manufacturing dominance, could cement Lilly’s position in GLP-1 therapies—a $20 billion+ market by 2028.

Action Alert: This isn’t a “sell” situation—yet. The stock’s drop reflects short-term fears, not failure. Hold for the long term, but keep a close eye on Q2 updates and PBM negotiations. If orforglipron’s data holds, Lilly could rebound strongly. But until then, brace for volatility—the GLP-1 wars are far from over.

Final Data Point: Analysts’ average price target of $998.05 versus the post-earnings price of $898.95 leaves room for recovery—if investors regain faith in Lilly’s pipeline.