Why Did Eli Lilly Stock Slide 6% Despite Strong GLP-1 Momentum?

Eli Lilly LLY remains a dominant player in the global obesity market, with much of its recent growth driven by itsblockbuster tirzepatide (GLP-1) injections, Mounjaro for type II diabetes (T2D) and Zepbound for obesity. Despite being on the market for just over three years, both products have delivered exceptional sales growth as demand for GLP-1 therapies has surged worldwide. Together, these medicines now account for more than half of Lilly’s total revenues, underscoring how central the franchise has become to the company’s growth story.

However, Lilly’s shares fell about 5.9% on Tuesday after HSBC reportedly downgraded the rating on the stock and lowered its price target. The investment bank flagged potential pricing pressure, rising competition in the obesity drug market and the possibility that long-term revenue expectations for GLP-1 drugs may be overly optimistic. Another overhang is the continued availability of compounded versions of tirzepatide in certain channels despite the FDA’s crackdown, which could temper demand for Lilly’s branded therapies.

Eli Lilly’s primary rival in the weight-loss market is Novo Nordisk NVO, which markets its semaglutide (GLP-1) injections as Ozempic for T2D and Wegovy for obesity, competing directly with Mounjaro and Zepbound. Both companies have already introduced multiple price cuts in response to pressure from the U.S. government during 2025 and 2026 to improve patient access to GLP-1 medicines. As affordability becomes increasingly central to patient uptake, pricing dynamics — rather than product differentiation alone — may play a larger role in determining market share. This shift adds uncertainty to Lilly’s aggressive long-term revenue expectations for its obesity portfolio, which relies on higher volumes to offset price cuts.

Novo Nordisk has also strengthened its competitive position. In late December, the FDA approved an oral version of Wegovy, and the drug was commercially launched in early January. The approval made Wegovy the first GLP-1 therapy available as a pill for weight management, offering a needle-free alternative that could expand patient adoption.

Lilly, however, is close behind. The company has already filed regulatory applications in the United States, Europe and other markets seeking approval for its oral GLP-1 candidate, orforglipron, for obesity. With a potential FDA decision expected in April, investor caution appears to reflect uncertainty around the regulatory outcome. Earlier in 2026, the FDA delayed its decision once, which has likely contributed to the recent share price volatility. Even if orforglipron is approved, Lilly may still face execution challenges if patient adherence to an oral therapy falls short of expectations or if pricing pressures limit the product’s commercial potential.

Separately, last week, Lilly raised safety concerns about certain compounded versions of tirzepatide. The company warned that some compounded formulations are being mixed with vitamin B12, which can create an unidentified impurity through a chemical reaction between the two substances. According to Lilly, the safety profile of this impurity is unknown, and its potential effects on toxicity, immune reactions, drug activity and metabolism have not been studied.

The issue highlights the growing presence of compounded alternatives to Lilly’s approved drugs, Mounjaro and Zepbound. While Lilly argues these unapproved versions pose safety risks, their continued availability through telehealth platforms and compounding pharmacies could divert some demand away from branded products in the near term, particularly given their lower cost. That said, tighter regulatory enforcement or heightened safety concerns could ultimately push patients back toward Lilly’s FDA-approved therapies over time.

Competition Heating Up in the Obesity Space

The obesity space has garnered much of the spotlight over the past year due to the sizeable and still underpenetrated market opportunity. Smaller biotechs like Structure Therapeutics GPCR and Viking Therapeutics VKTX are also developing GLP-1-based therapies to challenge the incumbents.

Viking Therapeutics’ dual GIPR/GLP-1 receptor agonist, VK2735, is being developed both as oral and subcutaneous formulations for the treatment of obesity. Viking Therapeutics plans to advance oral VK2735 into phase III development for obesity in the third quarter of 2026.

Structure Therapeutics’ phase II ACCESS study on its orally GLP-1 RA, aleniglipron, for obesity, met its primary and all key secondary endpoints. Structure Therapeutics expects to initiate the late-stage program of aleniglipron in obesity around mid-2026.

Others like Roche, Merck and AbbVie are also looking to enter the obesity space by in-licensing obesity candidates from smaller biotechs, which could threaten Novo Nordisk and Eli Lilly’s dominance in the market. Last year, Pfizer acquired obesity drugmaker Metsera to gain a foothold in the space.

LLY Stock Price, Valuation and Estimates

Shares of Eli Lilly have gained 23.7% in the past six months compared with the industry’s 17.4% growth. The company has also outperformed the sector and the S&P 500 during the same time frame, as seen in the chart below.

LLY Stock Price Movement

Image Source: Zacks Investment Research

From a valuation standpoint, LLY stock is expensive. Going by the price/earnings ratio, the company’s shares currently trade at 25.99 forward earnings, higher than 17.65 for the industry. However, the stock is trading below its five-year mean of 34.56.

LLY Stock Valuation

Image Source: Zacks Investment Research

Estimates for Eli Lilly’s 2026 earnings have improved from $33.11 to $34.16 per share in the past 60 days, and estimates for 2027 earnings have improved from $41.48 to $41.90 per share over the same time frame.

LLY Estimate Movement

Image Source: Zacks Investment Research

Eli Lilly currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Free Report: Profiting from the 2nd Wave of AI Explosion

The next phase of the AI explosion is poised to create significant wealth for investors, especially those who get in early. It will add literally trillion of dollars to the economy and revolutionize nearly every part of our lives.

Investors who bought shares like Nvidia at the right time have had a shot at huge gains.

But the rocket ride in the "first wave" of AI stocks may soon come to an end. The sharp upward trajectory of these stocks will begin to level off, leaving exponential growth to a new wave of cutting-edge companies.

Zacks' AI Boom 2.0: The Second Wave report reveals 4 under-the-radar companies that may soon be shining stars of AI’s next leap forward.

Access AI Boom 2.0 now, absolutely free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Novo Nordisk A/S (NVO): Free Stock Analysis Report

Eli Lilly and Company (LLY): Free Stock Analysis Report

Viking Therapeutics, Inc. (VKTX): Free Stock Analysis Report

Structure Therapeutics Inc. Sponsored ADR (GPCR): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research