Eli Lilly Stock Plummets 18% in a Week—Here’s What Went Wrong
Pharma giant Eli Lilly took a nosedive this week, shedding a staggering 18% of its market value. Investors hit the panic button—but was it justified, or just another overreaction in the casino we call Wall Street?
The bloodbath breakdown:
No major scandals or FDA rejections surfaced. Instead, whispers of pipeline delays and pricing pressures spooked the herd. Classic sell-first, ask-questions-later behavior from institutional traders who wouldn’t know a molecule from a mortgage-backed security.
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The dip might create buying opportunities for brave souls. Or it might be the start of a longer slide. Either way, remember: in biotech investing, you’re either early... or you’re wrong.
Expansion of weight loss drugs miss expectations
The top-line figures looked strong for the second quarter. Revenue grew 38% year over year to $15.5 billion, driven by gains for its weight loss drugs.
Mounjaro revenue grew 68% year over year to $5.2 billion in the quarter, while Zepbound grew 172% to $3.4 billion. Net income was also rock solid, up 91% to $5.56 billion. Investors were likely pleased to see these revenue gains and profit margins expand. There is still plenty of opportunity to get more and more obese people taking these weight-loss drugs around the globe, given that there are an estimated 1 billion or more obese people today.
So why did the stock drop? For two reasons: First is the uncertainty over pharmaceutical tariffs placed by the United States on foreign imports, which could have a large impact on Eli Lilly's cost structure.
Second is the data on results from a new weight-loss drug called orfoglipron showing that it had large drop-out rates when taken during a trial. This made investors pessimistic on the company's drug pipeline.
Image source: Getty Images.
Time to buy the dip?
Eli Lilly is guiding for just over $20 in earnings per share (EPS) this year, and it trades at a forward price-to-earnings ratio (P/E) of 28. This is much cheaper than it traded at a year ago, but it is not a dirt cheap valuation and a bit of a surprise for a stock in a 35% drawdown. Its previous P/E was quite the premium.
Growth from these blockbuster drugs should continue through the rest of this decade, which will lead to further operating leverage and growth for Eli Lilly in EPS. For that reason, the stock is likely a good buy for investors searching for a solid stock in the midst of this booming bull market.
