Eli Lilly Earnings Uncertain Amid Drug Shortages, Up 25% YTD

Key Takeaway

• Eli Lilly faces shortages of obesity/diabetes drugs, potentially missing Q1 revenue by $445M, impacting earnings by 13 cents/share.
• Despite drug shortages, strong demand for Mounjaro and Zepbound could drive recovery in H2; analysts focus on production ramp-up and insurance coverage.
• Lilly's stock up over 25% YTD, with expansion into new indications like sleep apnea and cardiovascular benefits of Tirzepatide eyed for future growth.

Supply Shortages Impact Eli Lilly's Outlook

Eli Lilly is facing worsening shortages of its popular obesity and diabetes medicines, Tirzepatide, used in Mounjaro and Zepbound, with the Food and Drug Administration indicating limited supplies through the second quarter for all dosages except the introductory 2.5 milligram level. Deutsche Bank analyst James Shin predicts that these shortages will cause Eli Lilly's first-quarter revenue to fall short of the Wall Street consensus estimate of $8.9 billion by approximately $445 million, potentially lowering earnings by about 13 cents per share. Despite these challenges, Shin believes that strong demand for Mounjaro and Zepbound could offset any shortfalls in the second half of the year. Leerink analyst David Risinger notes that the shortages are affecting the drugs' performance, with combined prescriptions of Mounjaro and Zepbound rising 63% year over year for the week ended April 19, a slowdown from the 91% growth seen in the previous four-week period.

Analysts Eye Future Growth and Manufacturing Ramp-Up

Investors and analysts are keenly interested in how quickly Eli Lilly can increase the production of these critical drugs and the associated costs. The focus remains firmly on Zepbound and Mounjaro for Eli Lilly's future growth, despite slowing prescriptions for Trulicity, an earlier generation drug. Analysts are also watching how insurers are adding Zepbound to their coverage lists and its impact on the drugs' realized prices. UBS analyst Jo Walton highlighted the growing acceptance of Zepbound, with plans covering about 45% of U.S. lives still undecided on coverage as of mid-April. Wells Fargo analyst Mohit Bansal suggests that while pricing could offer some upside, the supply dynamic remains a crucial factor.

Expanding Drug Applications and Stock Performance

Eli Lilly is exploring the expansion of its incretin drugs to other indications, with positive early findings from its Surmount study for obstructive sleep apnea boosting the stock. Further details on this study and ongoing research into Tirzepatide's cardiovascular benefits are expected by the end of the second quarter. Despite the current challenges, Eli Lilly's shares have risen more than 25% year to date, with analysts maintaining a largely positive outlook and an average price target suggesting about 12% upside. Updates on Lilly’s Alzheimer’s treatment, donanemab, are also anticipated following a delay in FDA decision-making.

Street Views

• James Shin, Deutsche Bank (Neutral on Eli Lilly):

  "Script data from IMS/IQVIA suggest that Lilly’s first-quarter revenue will miss the Wall Street consensus estimate of $8.9 billion by about $445 million... earnings will be lower by about 13 cents per share."

• David Risinger, Leerink (Neutral on Eli Lilly):

  "The ongoing shortages are hampering the drugs’ performance."

• Mohit Bansal, Wells Fargo (Bullish on Zepbound and Mounjaro for Eli Lilly's future growth):

  "Investors to look past any Trulicity shortfalls as the focus is firmly on Zepbound and Mounjaro for Lilly’s future growth."

• Jo Walton, UBS (Bullish on Zepbound):

  "We see growing acceptance of Zepbound as a number of plans make coverage decisions... patients seem to be getting access to Zepbound at a faster pace than Wegovy at a similar time period."