Eli Lilly’s Zepbound Formulary Setback: A Speed Bump or a Detour?

In late April 2025, CVS Health’s decision to exclude Eli Lilly’s (LLY) blockbuster weight-loss drug Zepbound from its template formulary starting July 1 sent shockwaves through the market. The stock plummeted nearly 11% in a single day, erasing over $90 billion in market cap. However, beneath the short-term volatility lies a more nuanced story—one of robust financial performance, strategic pipeline investments, and a pharmaceutical landscape where formulary decisions are just one piece of a complex puzzle. For investors, the question isn’t whether Zepbound’s exclusion poses a risk, but whether it’s a speed bump on the road to long-term growth.

The Financial Context: Zepbound’s Role in Lilly’s Surge

Zepbound’s importance to Lilly cannot be overstated. In Q1 2025, the drug generated $2.31 billion in sales—a staggering 345% increase from $517 million in the same period in 2024. This performance was a key driver of Lilly’s overall revenue growth of 45% to $12.73 billion, outpacing expectations and underscoring Zepbound’s position as a pillar of the company’s growth strategy.

The exclusion from CVS’s template formulary, while headline-grabbing, may have been overblown. CVS’s template is used by only a small fraction of its employer clients, as most customize their formularies. CEO David Ricks emphasized this point, noting that “most employers don’t fully adopt template formularies,” suggesting the exclusion’s impact on actual patient access would be limited.

Lilly’s Position: Confidence in Clinical Efficacy and Pipeline

Lilly’s leadership has been unequivocal in its defense of Zepbound. Ricks highlighted a head-to-head trial conducted late in 2024, where Zepbound outperformed Novo Nordisk’s Wegovy in weight loss, with patients losing 20% of their body weight versus 15% for Wegovy. This data, combined with Zepbound’s FDA approval for treating moderate-to-severe obstructive sleep apnea (OSA) in adults with obesity (granted in December 2024), reinforces its clinical value beyond mere weight management.

But the real long-term story lies in Lilly’s pipeline. Two next-generation therapies—orforglipron and retatrutide—are poised to amplify the company’s dominance in the obesity and diabetes markets:
- Orforglipron, a once-daily oral pill, is in Phase III trials for obesity and type 2 diabetes. Expected to file for FDA approval by end-2025, it could offer a non-injectable alternative to Zepbound and Wegovy, potentially broadening accessibility and reducing costs.
- Retatrutide, a quarterly injectable, has shown superior efficacy to semaglutide in trials, with patients losing up to 22% of their body weight. Its approval timeline, likely in late 2025 or 2026, could position it as a next-gen leader in the space.

Analysts’ Take: Overreaction or Prudent Caution?

The stock’s sharp decline was met with skepticism from analysts, many of whom called the sell-off “overdone.” Key points from their analyses:
- Leerink Partners: Maintained an “Outperform” rating, noting that Zepbound retains 75% of new obesity prescription share. The firm argued that employers’ formulary flexibility would limit the exclusion’s impact.
- Jefferies: Highlighted Lilly’s “sustainable growth through innovation,” emphasizing that Zepbound’s clinical superiority and pipeline momentum justify its valuation.
- BofA Securities: Acknowledged potential pricing pressures but argued they would be gradual, not catastrophic.

The Regulatory and Competitive Landscape

Both Lilly and Novo Nordisk face mounting pressure to reduce drug prices, particularly under U.S. government scrutiny. CVS’s move to prioritize Wegovy at a reduced $500/month for uninsured patients reflects PBMs’ leverage in pushing manufacturers to compete on price. However, Lilly’s pipeline—particularly orforglipron—could counter this by offering a lower-cost, convenient alternative.

Conclusion: Positioning for Long-Term Dominance

While the CVS exclusion introduces near-term uncertainty, the data points to a resilient outlook for Lilly. Zepbound’s Q1 sales growth, its OSA approval, and the pipeline’s potential mean the company is far from dependent on a single formulary decision. With a market cap of over $200 billion and a 45% revenue surge in Q1, the fundamentals remain strong.

Analysts’ reaffirmed revenue guidance of $58–61 billion for 2025, despite the exclusion, underscores this confidence. Meanwhile, the $11.8 billion projected sales for orforglipron by 2030 and retatrutide’s promising data suggest the pipeline can offset any short-term headwinds.

For investors, the takeaway is clear: While formulary decisions matter, they are but one factor in a story defined by innovation, clinical differentiation, and a robust pipeline. Eli Lilly’s stumble in May 2025 appears less a detour and more a momentary pause—a chance to buy into a company primed to lead the next wave of metabolic drug innovation.