Lilly shares drop 10% as GLP-1 drugs disappoint
2min read Eli Lilly’s Q3 results missed Wall Street expectations on both revenue and earnings per share (EPS), with the company reporting $11.44 billion in revenue against the $12.18 billion anticipated, and adjusted EPS of $1.18 falling short of forecasts. The revenue miss was notably driven by underperformance in key GLP-1 drug sales, including Mounjaro and Zepbound, where both products came in below expectations, significantly impacting market sentiment and driving Lilly shares down by 10% in pre-market trading. In tandem, Novo Nordisk’s (NVO) stock fell around 4% in sympathy, given the close competition between the two companies in the GLP-1 space.
Mounjaro and Zepbound, which have been major drivers of Lilly's growth trajectory, saw weaker-than-expected performance due to both inventory reductions in the wholesaler channel and lower-than-forecast demand. Mounjaro generated $3.11 billion in revenue, missing the $3.62 billion consensus, while Zepbound posted $1.26 billion, below the anticipated $1.63 billion. The inventory pullbacks particularly affected Mounjaro and Zepbound, which Lilly estimates impacted their combined U.S. sales by a mid-single-digit percentage. This underperformance has raised questions about the consistency of growth for these GLP-1 drugs, prompting analysts and investors to re-evaluate near-term expectations.
On a more positive note, non-incretin products, including oncology and immunology drugs like Verzenio and Taltz, showed resilience, contributing to a 17% year-over-year increase in non-incretin revenue when adjusted for divestitures. Verzenio revenue climbed 32% year-over-year to $1.37 billion, just shy of the $1.39 billion estimate, while Taltz exceeded expectations with $879.6 million in revenue, up 18% and beating the $839.4 million forecast. These strong performances highlight a diversified growth strategy that extends beyond Lilly’s GLP-1 franchise.
Despite the earnings miss, Lilly reported a 42% increase in revenue year-over-year when excluding the impact of divested assets, reflecting underlying demand for new and growth products. Excluding the one-time olanzapine (Zyprexa) portfolio revenue from Q3 2023, Mounjaro and Zepbound led volume growth of 36% globally, though both products struggled domestically due to channel inventory adjustments. U.S. revenue surged by 46% to $7.81 billion, supported by increased prices and volumes for products such as Humalog and Trulicity, though Trulicity saw a 22% year-over-year decline.
Lilly’s guidance for 2024 was updated to reflect a reduced revenue range of $45.4 to $46.0 billion, down from $45.4 to $46.6 billion previously, as well as a notable EPS guidance reduction due to higher in-process research and development (IPR&D) charges. EPS guidance on a reported basis now stands at $12.05 to $12.55, down from $15.10 to $15.60, while non-GAAP EPS is forecasted at $13.02 to $13.52, down from $16.10 to $16.60. This reduction largely stems from a $3.33 per-share charge related to acquired IPR&D, primarily associated with Morphic Holding.
Beyond the financials, Lilly highlighted advancements in its pipeline and regulatory milestones, which continue to position the company for long-term growth. In Q3, Lilly received U.S. approval for Ebglyss for atopic dermatitis and Japan approval for Kisunla for early symptomatic Alzheimer’s disease. Additionally, positive late-stage data from tirzepatide and donanemab support potential future expansions in obesity and Alzheimer's treatment, indicating Lilly’s continued commitment to high-impact therapeutic areas.
The gross profit for the quarter rose by 21% to $9.27 billion, representing 81% of revenue, driven by a favorable product mix and higher prices for key products like Humalog and Verzenio. However, research and development (R&D) expenses climbed 13% year-over-year to $2.73 billion, representing 23.9% of total revenue, as Lilly continued to invest heavily in its late-stage pipeline. Increased spending in R&D and marketing for new launches and the continued expansion of supply chains for high-demand drugs, especially tirzepatide, are expected to weigh on near-term earnings.
Overall, while Lilly’s Q3 performance was mixed, with disappointing results for key GLP-1 drugs affecting investor sentiment, the company’s strong portfolio growth outside of incretin products and advancing pipeline remain critical to its longer-term growth potential.
