Eli Lilly’s release does not mean that the weight loss drug craze is over

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Eli Lilly’s thick valuation means there isn’t much room for error. Shares have more than tripled since the start of 2022 to make the company the world’s most valuable drugmaker. Thanks to the craze for its weight-loss drug, at its peak last month it had a market capitalization of over 860 billion. USD. Its price to forward earnings multiple of over 50 times also puts it at a big premium to other drug groups. Pfizer trades only 11 times.

With such high expectations, it didn’t take much bad news before Eli Lilly’s blistering run went into reverse.

That appears to be what happened on Wednesday. The stock fell as much as 11 percent in premarket trading after Eli Lilly reported quarterly sales for its key GLP-1 drugs — Mounjaro and Zepbound — that missed analysts’ estimates. After raising its guidance twice this year, Eli Lilly now expects full-year sales to top out at $46 billion. compared to its previous guidance of $46.6 billion.

Shares rose slightly to trade 9 percent lower. Still, the sales look exaggerated. The latest results are not a washout. Sales of Mounjaro, a diabetes treatment that some doctors prescribe off-label as a weight-loss drug, came in at $3.11 billion. USD during the quarter. While that missed analysts’ expectations of $3.6 billion, that’s still more than double the $1.4 billion the drug pulled in over the year. Zepbound, a weight-loss injection first approved last year, generated $1.26 billion. in sales, below the predicted $1.69 billion.

The shortages are largely due to inventory problems rather than weaker demand. Until recently, Eli Lilly had struggled to produce enough Mounjaro and Zepbound to meet demand. An increase in production capacity finally allowed it to fill backorders and improve wholesale supplies during the second quarter. During the third quarter, wholesalers chose to sell down on existing inventory rather than buy more.

There is a good reason for that. Both Mounjaro and Zepbound are available in six different dosages. Effective inventory management means wholesalers wait to see which dosages are most popular before restocking. A better measure of demand would be the number of prescriptions for the drugs. These increased 25 percent quarter on quarter.

With more than 40 percent of American adults considered obese, demand for weight loss medications will remain robust. One estimate reckons that the market for GLP-1 drugs could be worth as much as 150 billion. USD in 2031. The long-term outlook for Eli Lilly’s obesity business remains intact — especially if the drugs end up providing other health benefits.

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