Eli Lilly’s Stock Selloff: A Buying Opportunity in a Growing Market?

In early 2025, shares of Eli Lilly (LLY) plummeted following a strategic move by CVS Health and mixed investor reactions to its Q1 earnings. Analysts argue the market overreacted, overlooking the company’s robust pipeline, dominant market position in obesity treatments, and long-term growth potential. Let’s dissect the catalysts, the data, and the broader narrative shaping this biotech giant’s trajectory.

The Catalysts: Formulary Decisions and Earnings Volatility

The sell-off began in May 2025 when CVS Health announced it would prioritize Novo Nordisk’s Wegovy over Eli Lilly’s Zepbound in its formulary starting July 1. This decision sent shares down sharply, as investors feared a price war in the GLP-1 obesity drug market. However, analysts like JPMorgan argued this move would not accelerate price declines, noting that Lilly’s Zepbound had already captured 62% of U.S. obesity prescriptions by Q1—surpassing Wegovy’s 38% share.

Simultaneously, Lilly reported strong Q1 results: revenue rose 45% YoY to $12.7 billion, driven by its GLP-1 franchise, which generated $6.1 billion. Yet, shares fell 11% post-earnings, as the CVS decision overshadowed the positive numbers. Analysts, however, saw this as a buying opportunity.

The Pipeline: Orforglipron as a Game-Changer

At the heart of analysts’ optimism lies Eli Lilly’s oral GLP-1 drug, orforglipron. Phase 3 trials showed it outperformed injectables in both diabetes and weight loss, with a superior safety profile. This is critical as oral medications are preferred by 25-50% of patients in these categories.

The drug’s advantages—no cold-chain requirements, easier manufacturing, and patient preference—position it to dominate a $40 billion GLP-1 market still in its early stages. Only 6% of U.S. adults eligible for GLP-1 treatments are currently using them, suggesting vast untapped demand.

Strategic Moves: Innovation Over Formulary Battles

CEO David Ricks dismissed CVS’s decision as a “last-decade strategy,” emphasizing Lilly’s focus on next-generation therapies like orforglipron and retatrutide (an injectable obesity drug showing superior efficacy in early trials). The company is also investing $27 billion in U.S. production capacity to mitigate supply constraints and tariff risks, signaling long-term confidence.

Financials and Risks: Navigating Near-Term Headwinds

Lilly reaffirmed its 2025 revenue guidance of $58–61 billion but lowered its adjusted EPS range due to a $1.57 billion non-operational charge. Analysts note that tariffs (including potential Trump-era policies) remain a wildcard, but the company’s U.S. manufacturing investments aim to insulate it from such risks.

Valuation and Analyst Consensus

Lilly’s stock trades at a 39x forward P/E ratio—far higher than Novo Nordisk’s 25x—but analysts argue this premium is justified. JPMorgan and Barron’s analysts reaffirmed $1,100 price targets, citing orforglipron’s potential and the GLP-1 market’s growth. Even Jim Cramer’s Investing Club called the sell-off “a gift,” highlighting the “best medication wins” dynamic.

Conclusion: A Strategic Buy for Patient Investors

The May 2025 selloff was a reaction to near-term concerns, but the fundamentals remain strong. Key data points:
- Market Leadership: Zepbound’s 62% prescription share vs. Wegovy’s 38% (Q1 2025).
- Pipeline Power: Orforglipron’s Phase 3 success and retatrutide’s superior efficacy.
- Valuation Drivers: The $40 billion GLP-1 market’s untapped potential (only 6% penetration).

Analysts’ buy ratings and price targets reflect confidence in Lilly’s ability to capitalize on its innovations. While short-term volatility may persist, the company’s dominance in oral GLP-1s and its strategic investments make this a compelling long-term opportunity. For investors willing to look beyond the noise, the sell-off could prove to be a rare entry point in a high-growth sector.