Lilly's Sales Surge Fails to Lift Stock as Earnings Forecasts Trimmed Amid Rising R&D Costs

Lilly's recent earnings report for the first fiscal quarter of 2025 reveals a noteworthy 45.2% surge in sales year-over-year, reaching $12.73 billion, surpassing analysts' forecasts of $12.62 billion. This impressive growth is attributed predominantly to the robust performance of its flagship obesity medication, Zepbound, and the diabetes treatment, Mounjaro. Zepbound alone generated $2.31 billion in sales, more than quadrupling from the same period last year, while Mounjaro chalked up $3.84 billion, exceeding analysts' estimates by $30 million.

Despite this impressive revenue growth, Lilly has concurrently lowered its full-year adjusted earnings forecast to a range of $20.78 to $22.28 per share, down from previous guidance of $22.50 to $24.00. The company cited increasing research and development expenses as a primary contributor to this revision. Additionally, a $1.57 billion transaction cost associated with acquiring a cancer treatment from Scorpion Therapeutics was recorded in the first quarter, further impacting profit expectations.

Heightened competition presents another significant challenge for Lilly. CVS Health's announcement that it will cease reimbursement for Zepbound while continuing to cover Novo Nordisk's competing GLP-1 obesity medication, Wegovy, exposes Lilly to intensified pricing pressure. In response, Lilly reduced the cost of Zepbound earlier this year, although these price adjustments affected revenue during the quarter.

The strategic landscape is not without uncertainties for Lilly. The company mentioned the uncertainty surrounding U.S. administration's drug tariff policies, which could potentially influence costs and profitability moving forward. CEO Dave Ricks alluded to tariff threats as a catalyst for re-shoring vital supply chains in critical sectors like pharmaceuticals. Lilly has pledged to expand its U.S. manufacturing operations with a commitment to invest at least $27 billion domestically.

In the face of robust market competition from companies like Novartis and Johnson & Johnson, sustaining market share and competitive edge will require Lilly to continue its investments in research and development. However, the escalating R&D expenses pose an ongoing challenge to profitability. The need for Lilly to consistently outperform expectations to justify its high stock valuation was underscored by industry analysts, indicating a crossroads for future growth amid policy ambiguities and market dynamics.