Eli Lilly lowered its revenue forecasts for the full year after an inventory drawdown by wholesalers weighed on sales for blockbuster weight loss and diabetes drugs.
The stock fell 13% when markets opened on Wednesday.
Both Mounjaro and Zepbound missed analyst sales expectations by a combined 18% in the third quarter. Weight loss and diabetes drug Mounjaro and Zepbound, which were in high demand last quarter, drew lower-than-expected sales of $3.11 billion and $1.26 billion after wholesaler demand fell this third quarter.
The company blamed wholesalers, which buy the drug from manufacturers and sell them to hospitals and pharmacies, for lower-than-expected sales. Wholesalers stocked up on the drug last quarter when demand was high and supply uncertain. This quarter supply was in better shape, but wholesalers already had inventory on hand, leading to a slump in company sales.
Lilly was adamant that neither supply nor demand was a constraint during the earnings call.
“We’re carefully gating those two things together,” said Eli Lilly’s Chair and CEO David Ricks during the third quarter earnings call.
The company also lowered its revenue expectations to be between $45.5 and $46 billion for the year down from $46.6 billion in the previous quarter. Net income fell to $970 million, which dropped earnings-per-share to $1.18 down more than two-thirds from last quarter.
In the second quarter, increased supply allowed Lilly to fulfill the majority of wholesalers’ backorders “serving as a tailwind to sales last quarter,” said Truist analysts in a note.
The company also said that Zepbound would be marketed as a treatment for sleep apnea with Food & Drug Administration approval expected by 2025. This would expand access to the drug, which currently only treats about 2% of the eligible US patients, according to a study by Morgan Stanley. In total, 40% of Americans are classified as obese.
The company has battled with supply shortages for tirzepatide, the main component for its weight loss and diabetes drugs, since demand shot up last year after Zepbound’s release in November 2023. The drug revolutionized the weight loss industry, a market estimated at $100 billion by 2030 and pioneered by Novo Nordisk’s Ozempic. Zepbound can help patients lose up to 20% of their body weight, according to the company’s website.
Compounded drugs began selling the drug in 2022, after tirzepatide, the active ingredient in Zepbound and Lilly’s earlier diabetes drug Mounjaro, came into shortage. Compounded pharmacies were allowed to sell cheaper, knock-off versions of the drug while tirzepatide remained on the FDA’s shortage list.
But these drugs are not FDA approved and raise questions of safety and efficacy.
“Compounding pharmacies are not always bad,” said Rajesh Kumar, equity analyst at HSBC before the earnings call, “but lighter regulations create a risk on quality.” Kumar cited research from Lilly’s competitor Novo Nordisk on compounded drugs that show a “quite substandard” product, according to Kumar.
The issue was still top of mind for equity analysts during last month’s earnings call. The company responded by saying compounders were not a major financial concern and that their main issue was the safety of “thousands of people” who are getting non-FDA approved weight loss medication.
Eli Lilly ramped up production last year and invested over $10 billion to expand manufacturing capacity for its weight loss drugs and end supply shortages. They have also invested in the development of another weight loss drug Retatrutide which is currently in phase 3 of trials.