Eli Lilly's top-selling drug last year is softening. But it may not matter for the stock

Published Fri, Apr 12 20241:45 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Sales of some Eli Lilly drugs — including its best-selling product last year — appear to be softening, according to Wall Street analysts. But that might not be enough to stop its stock from climbing higher. Prescription data for multiple Eli Lilly drugs — especially type-2 diabetes treatment Trulicity — points to weaker trends in the first quarter, analysts at Wells Fargo said in a note this week. It could mean Lilly's results for the three-month period will come in merely on par with estimates. JPMorgan flagged similar trends for Trulicity, which led all Lilly drugs with $7.13 billion in sales for all of 2023. The upshot, though, is the products investors care about most — obesity treatment Zepbound and type-2 diabetes drug Mounjaro — are still seeing fervent demand, analysts said. In fact, some of Trulicity's declines are tied to patients continuing to switch to the more effective Mounjaro. Quarterly sales of Mounjaro eclipsed Trulicity for the first time in the fourth quarter of 2023, and are expected to do so again in the first quarter of 2024. "[As] long as Zepbound and Mounjaro deliver, investors might ignore the other products," Wells Fargo analysts wrote to clients — an outlook that makes sense because those two drugs are central to the investment case for many shareholders, including the Club. The thesis is predicated on Eli Lilly growing faster than the broader pharmaceutical industry for years to come. Nothing is more important to that growth right now than tirzepatide, the active ingredient in both Zepbound and Mounjaro. Even before U.S. regulators approved Mounjaro for diabetes in May 2022, Jim Cramer said that tirzepatide, due to its weight loss abilities, could become the best-selling drug of all time . Zepbound secured U.S. regulatory approval for obesity in November. Both drugs are injectables. LLY .SPX YTD mountain Eli Lilly's year-to-date stock performance compared with the S & P 500. Tirzepatide is part of a fast-growing class of drugs known as GLP-1s, which mimic a hormone in the gut to improve blood sugar control and effectively suppress appetite, contributing to weight loss. Some analysts believe the market for GLP-1s could be worth $100 billion by the end of the decade. Eli Lilly shares have been on a multiyear tear as Wall Street awoke to the growth potential of GLP-1s, particularly for obesity. The stock, despite being flat over the past month, was up 30% year to date. Over the past three years, shares of Eli Lilly have soared nearly 300%, compared with a 24% gain for the S & P 500 . Lilly and Danish rival Novo Nordisk , which makes first-to-market Ozempic for diabetes and Wegovy for weight loss, dominate the market for GLP-1s. Their success has led to pharmaceutical companies big and small investing heavily to try to capture a piece of the expanding market down the road. However, some Wall Street analysts believe it may be hard to knock Eli Lilly and Novo Nordisk from their perch because manufacturing injectable versions of the drugs is a complex, capital-intensive process, and the companies have next-generation GLP-1s coming down the pike that look attractive. "The wide moat created by both Novo and Lilly ... will likely drive the persistence of this duopoly into the medium (and potentially longer) term," analysts at BMO Capital Markets wrote in a note Friday. The firm, which has long been bullish on Eli Lilly, started coverage of Novo Nordisk with a buy rating Friday. Both Lilly and Novo continue to experience supply constraints for their GLP-1s due to robust demand. Certain doses of Zepbound and Mounjaro are expected to remain in shortage through April, according to a Food and Drug Administration website tracking drug supplies. Most doses of Wegovy also have limited availability, with no current estimated end to the shortage, according to the FDA. The Club owns Eli Lilly over Novo Nordisk due to a belief that the Indianopolis-based drugmaker has a broader pipeline of drugs, such as its experimental Alzheimer's disease treatment donanemab. The drug has hit a few hurdles with the FDA in the review process, including one last month , but regulatory clearance for donanemab is still expected at some point this year. (Jim Cramer's Charitable Trust is long LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A box of the drug trulicity, made by Eli Lilly Pharmaceutical, sits on a counter at a pharmacy in Provo, Utah, January 9, 2020.

George Frey | Reuters