Eli Lilly Stock Plummets 12% on CVS Health Deal, Loses $90 Billion

Eli Lilly and Company, a pharmaceutical giant, reported earnings that exceeded expectations on Thursday. However, its stock price plummeted by nearly 12%, resulting in a market capitalization loss of over 90 billion dollars in a single day. This significant drop was attributed to an overreaction by the market to the news that novo nordisk and cvs health had reached a preferred placement agreement for Novo Nordisk's weight loss drug Wegovy, while Eli Lilly's Zepbound was not included in the prescription drug list of CVS Health.

Analysts from Leerink Partners, including David Risinger, suggested that the market's reaction was overblown. Risinger reiterated a "buy" rating on Eli Lilly's stock, stating that the market's response was excessive. He also lowered the target price for Eli Lilly's stock from 989 dollars to 944 dollars, citing the prescription drug list news as a negative factor. This transaction is part of Novo Nordisk's recent efforts to expand the sales channels for Wegovy, which has already surpassed Eli Lilly's Zepbound in weekly prescription numbers. Novo Nordisk has also partnered with remote healthcare platforms like Hims & Hers, contributing to a more than 25% drop in its stock price over the past two months.

Jeffries analyst Akash Thawani questioned the effectiveness of Novo Nordisk's strategy, noting that eli lilly holds approximately 75% of the market share in the new branded weight loss drug prescription market. This has raised concerns that Novo Nordisk's actions could hinder Eli Lilly's growth momentum and potentially spark a price war, which put pressure on Eli Lilly's stock price on Thursday. On Friday, Eli Lilly's stock price showed signs of recovery, opening with a gain of over 4%.

Tim Anderson, an analyst at Bank of America Securities, commented that the stock price movement on Thursday reminded him of a common saying: "Expect volatility in stock prices and use the downturn as an opportunity, as long as there are no new major issues with the company's fundamentals—none were apparent today."

The primary concern surrounding the deal between CVS Health and Novo Nordisk is whether it will trigger a price war between the two leading GLP-1 market companies, leading to a continuous decline in prices. Anderson from Bank of America suggested that Thursday's stock price movement indicated that the market believed CVS Health's move would drive down the prices of GLP-1 market products from both companies, ultimately affecting their profits.

Eli Lilly's CEO, David Ricks, expressed disinterest in engaging in a price war, focusing instead on the success of next-generation GLP-1 drugs and the highly anticipated orforglipron, a weight loss drug expected to launch in mid-2024. Ricks emphasized the importance of innovation and choice, stating that Eli Lilly is deeply involved in the product update cycle and has more products in the pipeline.

Several analysts echoed similar sentiments in reports released later on Thursday, suggesting that the market's reaction to the news was overblown and that Eli Lilly's long-term prospects remain strong. The company's focus on innovation and its robust pipeline of new products are expected to drive future growth, despite the short-term volatility in its stock price.