Eli Lilly (NYSE: LLY) and its investors this past week learned a hard lesson: The sky is no longer the limit when it comes to sales of its blockbuster glucagon-like peptide 1 (GLP-1) drugs for diabetes and obesity.
Lilly finished the third quarter with a combined $4.37 billion in sales for its two GLP-1 products based on the same active ingredient tirzepatide—the type 2 diabetes treatment Mounjaro® and obesity drug Zepbound® Mounjaro accounted for $3.112 billion of those Q3 sales, with Zepbound racking up the remaining $1.258 billion.
At first glance, those numbers reflect healthy year-over-year increases, as Mounjaro sales more than doubled, zooming 121% from $1.409 billion in July-September 2023. Zepbound sales didn’t exist a year ago since the drug didn’t gain FDA approval until November 2023.
However, analysts polled by FactSet projected even higher quarterly sales for the GLP-1 drugs, forecasting $3.77 billion for Mounjaro and $1.73 billion for Zepbound. The GLP-1 sales are closely watched because they account for more than one-third (38%) of Lilly’s total $11.439 billion in total Q3 revenue.
Even worse: Based in part on those misses, Lilly lowered the high end of its revenue forecast or “guidance’ to investors for 2024 by 1.3% from $46.6 billion to an even $46 billion, while keeping the low end intact at $45.4 billion.
Lilly also cut its GAAP earnings per share (EPS) guidance range 20%, to between $12.05 and $12.55 from between $15.10 and $15.60. Non-GAAP EPS guidance was chopped 19%, to between $13.02 and $13.52 from between $16.10 and $16.60. Lilly blamed both cuts on acquired in-process research and development (IPR&D) charges it incurred during Q3.
The guidance reductions and disappointing revenue were enough to set off investors, who punished Lilly with a selloff that sent shares tumbling 8% over two trading days—the company’s worst one-day stock decline since 2021. From $903.58 on Tuesday, the day before Lilly reported its Q3 earnings, the company’s stock slid 6% to $846.83 Wednesday, then fell another 2% to $829.74 Thursday.
“Raises Questions”
“Disappointing Mounjaro and Zepbound sales may be due more to quarterly variability than slowing demand, but LLY’s plan to boost marketing efforts raises questions,” Steve Scala, managing director, Health Care-Pharmaceuticals (Major) with TD Cowen, wrote Wednesday in a research note.
Scala projected even higher sales for the GLP-1 drugs than FactSet—$3.895 billion for Mounjaro, an even $1.5 billion for Zepbound.
By contrast, Lilly finished the second quarter with revenues for Mounjaro and Zepbound beating consensus analyst forecasts by 33% and 42%, respectively.
Addressing analysts on the company’s quarterly earnings call Wednesday, Patrik Jonsson, Executive Vice President; President, Lilly Cardiometabolic Health and President, Lilly USA, said Lilly plans to planning to bolster its marketing of Mounjaro and launch efforts to boost demand for Zepbound, including a direct-to-consumer marketing campaign, “in earnest” in mid-November.
Lilly Chair and CEO David A. Ricks told CNBC Wednesday that Lilly had held off on advertising Zepbound and launching the drug internationally in order to boost inventory in the U.S.: “We haven’t been stimulating demand the way we had originally planned.”
Yet on the earnings call, Ricks maintained that underlying growth for the drugs was “as strong as we would have hoped.”
Ricks asserted that Lilly management did not view the gap between the Q3 results and the projections of even higher growth as indicating a softening of demand for the GLP-1 drugs: “Demand for Mounjaro and Zepbound has been strong and continues to grow as we expand both access and supply.”
Johnson denied that competition from compounders had a “huge financial impact” on Lilly’s business.
Instead, Lilly executives cited two other factors in the GLP-1 drugs missing forecasts.
• Inventory—Lucas Montarce, Lilly’s Executive Vice President, Chief Financial Officer, said many sellers cut their inventory levels for the drugs, represented a reduction he forecast to be in mid-single digits.
• “Lumpiness”—Ricks cited “lumpiness” or significant fluctuations in the stocking of product since Zepbound was launched last December.
“What we really don’t control and don’t attempt to but as a reality is that downstream customers from Lilly wholesalers and retailers are making their own decisions about which of the 12 different dosage forms they want to stock in at what level,” Ricks said.
Physical constraints
Those wholesalers and retailers face some physical constraints to stocking, the CEO added, citing their capacity for cold storage as an example.
According to Scala, “Wholesalers and retailers are apparently struggling to stock all 12 dosages of tirzepatide across Mounjaro and Zepbound, which could be contributing to quarterly variability.”
Lilly is the arch-rival of Novo Nordisk (NASDAQ Copenhagen: NOVO and NYSE: NVO), which markets two blockbuster GLP-1 drugs based on the active ingredient semaglutide—the adult type 2 diabetes drug Ozempic® and the obesity drug Wegovy®.
Novo Nordisk is expected to report Q3 earnings on November 6, before the opening of the market.
The missed expectations on Mounjaro and Zepbound sales compelled David Risinger of Leerink Partners to lower his firm’s 12-month price target on Lilly shares but only by 2%, from $990 to $970, though he maintained his firm’s “Outperform” rating on the stock.
Lilly shares, Risinger observed, may be bound within that range near-term pending data from studies of two potential competitors to Mounjaro and Zepbound: Novo Nordisk’s Phase III candidate CagriSema and Amgen (NASDAQ: AMGN)’s obesity candidate Maridebart Cafraglutide (MariTide), which is now in Phase II and wowed investors earlier this year.
MariTide is both a GLP-1 receptor agonist and a gastric inhibitory polypeptide receptor (GIPR) antagonist. CagriSema is a combination of semaglutide and the amylin analog cagrilintide.
Investors also seek greater clarity whether the company can deliver on its fourth-quarter revenue guidance, Risinger added.
Joining Risinger in lowering price targets on Lilly stock:
• B of A Securities (Geoff Meacham)—Down 4% from $1,150 to $1,100) but maintaining “Buy” rating.
• Barclays (Carter Gould)—Down 5% from $1,025 to $975 but maintaining “Overweight” rating.
• Truist Securities (Robyn Karnauskas)—Down 0.4% from $1,033 to $1,029 but maintaining “Buy” rating.
Karnauskas expressed optimism about Lilly’s growth prospects going forward in a research note, as reported by Investing.com. Karnauskas cited positive quarter-over-quarter prescription growth and management’s confidence that the trend could continue into Q4.
GeneDx shares leap 50% on non-GAAP profitability
GeneDx (NASDAQ: WGS) shares enjoyed another strong surge, leaping 50% from $56.06 to $84.02 Tuesday after the company announced encouraging third-quarter results that included the achievement of a non-GAAP profitability milestone. The diagnostics company reported that it finished Q3 with an adjusted net income of $1.2 million—a feat achieved a year ahead of its plan to do so next year.
GeneDx’s adjusted net income figure removes restructuring costs, depreciation and amortization, and stock-based compensation. The company’s adjusted gross margin from continuing operations continued to climb, reaching 64% from 62% in the second quarter and 48% in the third quarter of 2023.
Measured in traditional GAAP, GeneDx finished Q3 with a net loss of $8.3 million—which the company adjusted to a $1.2 million gain by removing fair value of financial liabilities and charges related to business exit, in addition to the adjustments it makes to its gross margins.
The company reported Q3 revenue of $76.874 million, nearly all of it ($76.622 million) coming from continuing operations, up 11% sequentially from Q2 and 52% year-over-year thanks to a 77% year-over-year growth in revenue from exome and genome tests.
“WGS continues to execute well, with another big beat and raise (along with short[-seller] interest up ~2x in last three months) driving meaningful share appreciation,” Jefferies equity analyst Tycho Peterson wrote Tuesday in a research note.
Looking ahead to ’25, the Jefferies analyst wrote, catalysts for growth include increasing approvals by state Medicaid programs of the company’s tests, ongoing progress on improving its margins—and notably, the onboarding of healthcare institutions to Epic Systems’ Aura suite of specialty diagnostics.
GeneDx and Epic launched a collaboration in June with the aim of expanding access to GeneDx’s rapid whole genome sequencing (rWGS) services in the neonatal intensive care units (NICUs) of leading health systems by seamlessly integrating into their ordering and resulting workflows GeneDx exome and genome testing. Epic Aura is set to launch in the first half of 2025.
A challenge for GeneDx could come, Peterson added, if the company winds down more of its current menu of tests during the fourth quarter, especially in hereditary cancer testing, which accounts for about $16 million in revenues: “Any exit/wind-down could have an impact on ’25 revenues.”
GeneDx has retired about 70% of its testing menu over the past year as it pivoted its operations toward offering diagnostic tests based on whole exome sequencing and whole genome sequencing, with emphasis on enabling diagnosis of rare diseases in children. Over time, GeneDx plans to expand into newborn screening, a potentially $10 billion market—then eventually into adult screening to replace multi-gene panel and individual gene tests, a future market pegged at $16 billion, Katherine Stueland, GeneDx’s president and CEO, told GEN Edge last month
“With tougher comps in ’25 and a potential headwind to revenues emerging in HCT, it is harder to argue for multiple expansion from here,” Peterson said. “Yet if the beat and raise parade marches on, valuation may matter less, in our view.”
Leaders and laggards
• AnaptysBio (NASDAQ: ANAB) shares tumbled 30% between Tuesday and Thursday after Eli Lilly (NYSE: LLY) presented slides during its third quarter earnings call showing that the company ended the Phase IIb RESOLUTION-1 trial (NCT05516758) assessing peresolimab in rheumatoid arthritis. Peresolimab, also called LY3462817, is a humanized immunoglobulin G1 monoclonal antibody found to stimulate human programmed cell death protein 1 (PD-1). AnaptysBio is developing its own wholly owned PD-1 agonist candidate for rheumatoid arthritis, rosnilimab, with data expected in Q1 2025. Lilly said in a statement it “will consider future development of peresolimab but have not made any final decisions at this time.” AnaptysBio shares skidded 28% from $30.80 to $22.18 Wednesday, then dipped another 2.5% to $21.63 Thursday.
• Coya Therapeutics (NASDAQ: COYA) shares nosedived 35% between Monday and Wednesday after the company announced mixed results from its placebo-controlled, 38-patient Phase II trial of low-dose interleukin-2 (LD IL-2) in patients with mild to moderate Alzheimer’s disease. Coya said the trial met its primary endpoint for safety and secondary endpoint for regulatory T cell (Treg) cell population enhancement, with no off-target effects on T effector lymphocytes, providing further evidence of target engagement in 22 patients dosed with five days of LD IL-2 (106 IU/day) or placebo every four weeks for 21 weeks. However, 16 patients dosed with 5-day cycles of LD IL-2 every two weeks (q2wks) or placebo for the same 21-week duration did not exhibit benefits in exploratory endpoints. Q2wks patients also did not show significantly modified cerebrospinal fluid soluble Aβ42 levels. Coya shares skidded 28% from $10.19 Monday to $7.37 Tuesday, then fell another 10% Wednesday to $6.66, before bouncing back 9% to $7.23 Thursday.
• Equillium (NASDAQ: EQ) shares plummeted 38% from $1.38 to 86 cents Thursday after the company said collaboration partner Ono Pharmaceutical let lapse its option to acquire Equillium’s rights to itolizumab, a monoclonal antibody targeting the CD6-ALCAM signaling pathway, which plays a key role in modulating effector T cells that drive numerous immuno-inflammatory diseases. “The decision was not related to data from any clinical program and there have been no observed or reported safety concerns,” Equillium stated. Equillium retains rights to the candidate, which is in the Phase III EQUATOR trial (NCT05263999) in acute graft-versus-host disease (aGVHD). Equillium said it is weighing accelerating completion of the EQUATOR trial to the first quarter of 2025.
• Essa Pharma (NASDAQ: EPIX) shares cratered 73% from $5.20 to $1.40 Friday after the company said it was terminating its Phase II trial (NCT05075577) assessing masofaniten combined with enzalutamide vs. enzalutamide alone in patients with metastatic castration-resistant prostate cancer (mCRPC) naïve to second-generation antiandrogens. A futility analysis showed that the enzalutamide control arm performed better than historical controls, and similar to the masofaniten-enzalutamide combination, and thus was unlikely to achieve the trial’s primary endpoint. “Senior management, together with the board of directors, are actively focused on preserving capital and will initiate a strategic process to explore and review a range of strategic options focused on maximizing shareholder value,” Essa Chairman Richard Glickman stated.
• GlycoMimetics (NASDAQ: GLYC) shares nearly tripled, zooming 188% from 17 cents to 49 cents Tuesday after the company announced it had agreed to be acquired by privately held Crescent Biopharma for an undisclosed amount. To support the deal, a syndicate of investors has committed $200 million to purchase GlycoMimetics common stock and GlycoMimetics pre-funded warrants to purchase its common stock—a financing expected to fund operations through 2027. The transaction is expected to close in the second quarter of 2025. Following closing, the combined company—to be called Crescent Biopharma—will develop a portfolio of precision-engineered biologics led by CR-001. The tetravalent PD-1 x VEGF bispecific antibody will be advanced through preliminary proof of concept clinical data in solid tumor patients, which is expected in the second half of 2026.
• Matinas BioPharma Holdings (NYSE American: MTNB) shares plunged 68% from $1.93 to 62 cents Thursday after the company slashed its workforce 80% and began exploring strategic options that include potential sale of its lead pipeline candidate MAT2203, the Phase III-ready oral formulation of amphotericin B, and a wind down and dissolution of the company. The moves followed termination of a preliminary agreement by an undisclosed partner global rights giving it global rights to MAT2203, a potential oral broad-spectrum treatment for invasive deadly fungal infections. Matinas said it planned to eliminate 15 positions, including those of its chief medical officer James J. Ferguson, MD; chief business officer Thomas Hoover; and chief technology officer Hui Liu, PhD.
