Why Eli Lilly's earnings are no sure thing for traders despite obesity drug momentum

Published Mon, Apr 29 20241:28 PM EDT

Christina Cheddar Berk @in/christina-cheddar-berk-b864404/

Eli Lilly appears to be making as much of its popular obesity and diabetes medicines as it can, but shortages are worsening , putting the company's earnings at risk, analysts say. Tirzepatide is the active ingredient in both Eli Lilly's diabetes treatment Mounjaro and its anti-obesity drug Zepbound. The Food and Drug Administration recently reported that supplies of both brands are expected to be limited through the second quarter, for all but one dosage — the introductory 2.5 milligram level. (To minimize side effects, patients gradually increase the dose they use of the drug.) Deutsche Bank analyst James Shin said 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. Based on that calculation, earnings will be lower by about 13 cents per share, he said, in research published last Tuesday. According to a LSEG survey, analysts expect Lilly will earn $2.46 per share on revenue of $8.92 billion when it releases its results Tuesday before the market opens. Shin's estimate calls for Lilly to earn $2.43 per share, slightly below consensus, which as been trending downward heading into the print. "While a miss might be in the cards for 1Q24, we don't think a miss will result in LLY lowering its FY24 guidance," Shin said. "Strong demand for Mounjaro & Zepbound can easily pull through in 2H24 and make up for any 1H24 shortfalls." But investors will want to know more details about how quickly Lilly can ramp up manufacturing of the drugs and what that effort will cost. In a research note Thursday, Leerink analyst David Risinger said the ongoing shortages are hampering the drugs' performance. For the week ended April 19, combined prescriptions of Mounjaro and Zepbound rose 63% year over year, according to IQVIA. However, the drugs were seeing 91% growth in the four-week rolling period, he said. Zepbound has been on the market since December. Digging into the details At the same time, total prescriptions for Trulicity, a earlier generation drug that uses glucagon-like peptide-1 agonists, or GLP-1, are also slowing. That will hurt the performance of Lilly's incretins portfolio as a whole, analysts said. Wells Fargo Mohit Bansal said he expects investors to look past any Trulicity shortfalls as the focus is firmily on Zepbound and Mounjaro for Lilly's future growth. Shin also noted that the there will be some messiness in the first-quarter trends because some of the fourth-quarter sales were pharmacies looking to build up inventory in the wake of Zepbound's approval. Analysts will also been keen to hear about how quickly insurers are adding Zepbound to their list of covered drugs, and how that is impacting realized prices of the drugs. "We see growing acceptance of Zepbound as a number of plans make coverage decisions," UBS analyst Jo Walton wrote in a research note dated April 18. Plans covering about 45% of U.S. lives still have yet to make a decision, as of mid-April, according to Walton, who noted that patients seem to be getting access to Zepbound at a faster pace than Wegovy at a similar time period. According to Bansal, pricing could provide some room for upside, but the supply dynamic remains key. "We don't expect significant guidance up-revision this quarter," he said. Beyond obesity As for Lilly's attempts to expand the label for its incretin drugs to other indications, there may not be more news on that front until June. Earlier this month, the company revealed some early findings from its Surmount study for obstructive sleep apnea that were very positive, and helped the stock rally. LLY YTD mountain Eli Lilly shares year to date. Further detail on that study is expected to be released in June. Research into whether Tirzepatide has cardiovascular benefits is ongoing, with more details also expected by the end of the second quarter. Lilly shares are up more than 25% year to date. Analysts remain largely positive on the stock, with an average price target of $826.94, or about 12% upside, according to LSEG. Deutsche Bank's Shin said any stock weakness around earnings will likely be viewed as a "buying opportunity" as investors look to get in on the growth story for this new class of drugs, which is predicted to have peak sales potential of over $100 billion by the end of the decade. Outside of the diabetes and obesity space, further updates on Lilly's Alzheimer's treatment donanemab, which is another key catalyst for the stock, will be worth a listen. In March, the FDA delayed a decision on the closely watched monoclonal antibody treatment. The surprising move pushed back the timetable for the drug's approval. —CNBC's Michael Bloom contributed to this report.