Eli Lilly’s Q3 Shortfall with Mounjaro and Zepbound Sheds Light on Reliance on Wholesalers
Eli Lilly recently faced a setback, revealing third-quarter earnings that failed to meet market analysts’ expectations. The company reported lower sales figures for its type 2 diabetes drug Mounjaro and weight management medication Zepbound—both of which feature the active ingredient tirzepatide. This marked a rare quarterly disappointment for Lilly, leading to a revision of its full-year 2024 guidance and causing its stock to plummet by over 13% in the early hours of trading on Wednesday.
The primary reason for the underwhelming Q3 performance of Mounjaro and Zepbound? The company cited “inventory decreases in the wholesaler channel” stemming from higher stock levels at the conclusion of Q2, as highlighted in its earnings announcement. Essentially, Lilly pointed to a reduction in wholesaler inventory of its leading drugs, which had previously been built up in earlier quarters.
The turbulent supply chain within the booming GLP-1 market has been well-documented as Lilly and its competitor Novo Nordisk maneuver through challenges. Both companies have invested significant resources to enhance their manufacturing capabilities to satisfy the soaring demand. Consequently, doses from both firms made their way onto the FDA’s shortage list. The agency recently lifted Mounjaro and Zepbound from the shortage list, but they are considering revisiting that decision. In contrast, the FDA announced recently that Novo Nordisk’s Ozempic and Wegovy are presently available in all dosages.
During Lilly’s Q3 disclosure on Wednesday, CEO Dave Ricks revealed additional intricacies in the ongoing supply chain challenges. In the earnings call, Ricks stated that the revenue shortfall for the GLP-1 medications was not tied to supply issues, but rather to wholesalers reducing their inventory levels. He highlighted that the decisions made by wholesalers and retailers regarding which of the 12 available dosage forms to maintain and at what quantities were outside Lilly’s control.
CFO Lucas Montarce added that reductions in wholesaler inventory could have influenced sales of Mounjaro and Zepbound by mid-single digits as a percentage of U.S. sales. Montarce emphasized, “While the demand for Mounjaro and Zepbound remains robust and increasing, quarterly revenue growth in 2024 has been adjusted due to supply and channel dynamics.”
David Risinger, an analyst from Leerink Partners, noted that Lilly’s Investor Relations team provided insights into U.S. channel destocking, specifying that wholesalers are currently under financial constraints and are tightly regulating their working capital.
“Considering IR’s observations, it appears that wholesalers are likely to keep tirzepatide inventory at minimal levels since LLY may not increase list prices,” Risinger stated, indicating that “wholesalers benefit from greater profits on held inventory during manufacturer price hikes.”
Truist Securities analyst Srikripa Devarakonda mentioned that wholesalers might experience unprecedented challenges in accurately managing up to 12 varying doses of cold-chain products, alongside Novo’s offerings, in quantities that require substantial capital.
While Devarakonda considered it mere “growing pains” and a part of the learning process, BMO Capital Markets’ Evan Seigerman expressed a more cautious outlook, indicating that Lilly is under “immense pressure” to deliver in Q4.
Seigerman cautioned that Q4 results “will be pivotal for the company—any missteps will be critical.” Ricks reiterated that demand for Mounjaro and Zepbound in the U.S. “is strong and continues to grow as we enhance both access and supply,” while Seigerman noted that building inventory effectively will be essential for a successful Q4. However, Ricks pointed out that Lilly is reliant on wholesaler decisions regarding stocking levels.