Eli Lilly Falls More Than 10% in a Month: Buy, Sell or Hold the Stock?

Key TakeawaysLLY has declined 10.6% this month after disappointing third-quarter results.The drug maker has seen strong success in recent years, with several new drugs in the pipeline.Register now to see our 7 Best Stocks for the Next 30 Days report - free today!The stock of Eli Lilly and Company LLY has declined 10.6% in a month. On Oct. 30, Lilly announced disappointing third-quarter 2024 results as it missed estimates for earnings as well as sales and also lowered its financial guidance for the year. Sales of Lilly’s popular tirzepatide drugs, Mounjaro for type II diabetes and Zepbound for obesity disappointed due to inventory issues.The total revenue guidance range was narrowed from $45.4 billion to $46.6 billion to $45.4 billion to $46.0 billion. The earnings per share guidance was sharply cut from a range of $16.10 to $16.60 to $13.02 to $13.52 due to the acquired IPR&D charges incurred in the third quarter, primarily related to the acquisition of Morphic, which was closed in August.Lilly’s stock has been on a roll this year as it witnessed unparalleled success with sales of Mounjaro and Zepbound. In the past couple of years, it received approvals for several other new drugs like Kisunla, Omvoh and Jaypirca and witnessed pipeline and regulatory success. Its new drugs have been contributing significantly to its top-line growth in 2024. Lilly is also making rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s. However, the lower-than expected sales performance of Mounjaro and Zepbound has put a brake on the stock’s uptrend, thus putting investors in a jeopardy whether to buy, sell or hold the stock.Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock amid the recent price decline.Mounjaro & Zepbound: Key Top-Line Drivers for LillyTirzepatide is a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA). The GLP-1 segment is a very important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity.Mounjaro was launched in May 2022 while Zepbound was launched in November 2023. Despite a short time on the market, Mounjaro and Zepbound have become key top-line drivers for Lilly in 2024, with demand rising rapidly. Since 2020, Lilly has committed more than $20 billion for manufacturing capacity for Zepbound and Mounjaro in the United States and Europe. Access and supply of the drugs is increasing in the United States. Mounjaro and Zepbound generated sales of $11.0 billion in the first three quarters of 2024, accounting for around 45% of the company’s total revenues.However, quarter-over-quarter growth of Zepbound and Mounjaro in 2024 has been impacted by supply and channel dynamics. In the second quarter, increased supply led to higher shipments, which allowed the company to fulfill all backorders for its wholesales. However, channel inventory decreased at wholesalers in the third quarter, which hurt sales of the drugs.  It is difficult to predict the demand/inventory dynamics of these products with the potential for lumpiness in channel stocking.Nonetheless, the company is balancing demand and supply of Mounjaro and Zepbound and the launch of the drugs in international markets. Lilly expects to increase demand activities for Mounjaro and Zepbound in the fourth quarter, which should benefit sales in 2025. The launch of Mounjaro in new international markets is expected to contribute to the drug’s sales growth in the fourth quarter.Tirzepatide is also being developed for other indications like obstructive sleep apnea, heart failure with preserved ejection fraction, cardiovascular risks and metabolic dysfunction-associated steatohepatitis. Approval for these expanded indications and launch in additional geographies can further boost sales.Lilly’s tirzepatide medicines face strong competition from Novo Nordisk’s NVO semaglutide. Semaglutide is approved as Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes and as Wegovy injection for weight management. Novo Nordisk also missed estimates for both earnings and sales in the third quarter as its diabetes and obesity products failed to meet investor expectations. Ozempic sales rose 26% at constant exchange rate. Wegovy sales rose 81%. Novo Nordisk said it was concerned about periodic supply constraints and drug shortages of its semaglutide products. The company slightly tightened its full-year guidance range for revenue and operating profit growth.Several companies like Amgen AMGN, Viking Therapeutics are making rapid progress in the development of GLP-1-based candidates in their clinical pipeline. These can pose strong competition to Mounjaro/Zepbound in the future.LLY’s New Drugs & Pipeline SuccessOther than Mounjaro and Zepbound, Lilly has gained approvals for some other new drugs in the past year. These include Omvoh for ulcerative colitis and BTK inhibitor Jaypirca for mantle cell lymphoma and chronic lymphocytic leukemia.In July, Lilly won a long-awaited FDA approval for Kisunla (donanemab) for treating early symptomatic Alzheimer's disease. Kisunla was also approved in Japan and Great Britain this year. Lilly believes Kisunla can generate blockbuster sales. Kisunla is only the second drug on the market to treat Alzheimer's disease after Biogen BIIB and its Japan-based partner Eisai’s Leqembi.Lilly is investing broadly in obesity and has 11 new molecules currently in clinical development. These include two late-stage candidates, orforglipron, an oral GLP-1 small molecule and retatrutide, a GGG tri-agonist and some mid-stage candidates, bimagrumab, eloralintide and mazdutide. Several phase III data readouts are expected in 2025.LLY’s Stock, Valuation and EstimatesLilly’s stock has risen 42.7% so far this year compared with an increase of 11.6% for the industry. The stock has also outperformed the sector as well as the S&P 500, as seen in the chart below.LLY Stock Outperforms Industry, Sector & S&P 500    Image Source: Zacks Investment ResearchThe stock is trading at a premium to the industry, as seen in the chart below.LLY Stock ValuationImage Source: Zacks Investment ResearchEstimates for Lilly’s 2024 earnings have declined from $15.80 to $13.19 per share over the past 30 days. For 2025, earnings estimates have declined from $24.10 to $23.71 per share over the same timeframe.LLY Estimate MovementImage Source: Zacks Investment ResearchStay Invested in LLY Stock Despite the DipThe stupendous success of Mounjaro and Zepbound has made Lilly the largest drugmaker with a market cap of more than $780 billion.  Lilly’s stock has gone up by 630% in the past five years, mainly due to its solid pipeline potential, particularly its obesity drugs.Lilly’s revenue growth is being driven by higher demand for Mounjaro, Zepbound, Verzenio and others, which will make up for the decline in sales from Trulicity. However, the disappointing sales of Mounjaro and Zepbound in the third quarter, coupled with the guidance cut, have created a bearish sentiment around the stock.But things are not all that bad. Its revenues were up 42% on an organic basis in the third quarter. Moreover, themid-point of Lilly’s 2024 revenue guidance range implies year-over-year revenue growth of 50% in the fourth quarter, which is higher than the third quarter. Over time, the supply issues for Mounjaro and Zepbound should be resolved as the company increases production capacity. The earnings guidance was cut for costs related to an acquisition, which eventually benefits a company in the long runWe suggest investors who own this Zacks Rank #3 (Hold) company to hold the stock as it still has growth prospects as demand for Mounjaro and Zepbound remains strong. Investors can wait and see if the company delivers any improvement in Mounjaro and Zepbound’s sales in the fourth quarter.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free Report: 5 Clean Energy Stocks with Massive UpsideEnergy is the backbone of our economy. 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