After a stunning 703% run-up in price over the past five years, shares of Eli Lilly and Co. have been on a roller-coaster ride since September.
The stock, which reached an all-time high of $972 on Aug. 27, has swayed back and forth in recent months on a series of headlines that could push or pull its fortunes.
That includes disappointing third-quarter sales and earnings and the election of Donald Trump as president, along with Trump’s plan to have vaccine skeptic Robert F. Kennedy Jr. oversee the nation’s health care system.
Lilly investors got the jitters, saw better opportunities elsewhere, or decided to hold onto their chips. In the third quarter alone, eight of Lilly’s 10 largest shareholders unloaded more than 6 million shares, depressing the stock. On Dec. 9, the company announced a $15 billion stock buyback, a signal that it feels its shares are undervalued.
Some financial analysts said they were not surprised.
“You definitely have some legacy owners that have made a lot of money on Lilly stock and are now taking their chips off the table,” said Roger Lee, director of research at Columbus-based Kirr, Marbach. “So if Lilly stock has outperformed all the other stocks in [the investors’] portfolio and now it’s bumping up against some kind of threshold, a lot of those firms will start trimming their positions.”
Lilly shares closed at $778.62 on Tuesday, down 19.8% from their high less than four months ago, when the company was being talked about as the next member of the “trillion-dollar club,” a group of, at the time, seven companies worldwide with a market value of $1 trillion or more. Ten companies are now in that category.
At its August peak, Lilly had a market value of $912 million; that had slipped to $736 million as of Tuesday.
The Indianapolis-based drugmaker has been riding a wave of strong sales for most of this year on obesity-treatment Zepbound and diabetes treatment Mounjaro. CEO David Ricks told a Dec. 10 lunch audience at The Economic Club of Washington, D.C., that Zepbound would be the company’s best-selling drug in its 148-year history by next year because of the huge demand for weight loss products.
“We’re just at the beginning of this weight-loss story,” Ricks said. “You know, right now there are 6 [million] or 7 million Americans who are taking these medicines. There are 110 million [Americans] with obesity. We need to build more plants and develop more data, get better insurance coverage, and then there’s the whole world to cover.”
He told IBJ in December 2023: “I think we’re a growth story like we’ve never been before.”
Lilly officials declined to comment for this story.
Several stockbrokers and analysts have said Lilly remains a strong company that investors are likely to still make money on.
Of the 27 analysts who follow Lilly, six have “strong buy” rating on the stock, 14 have a “buy” rating, six have a hold rating, and just one has a “sell” rating, according to Yahoo Finance.
“Overall, Lilly remains one of our top picks in the [pharmaceutical] group,” JPMorgan analyst Chris Schott said in a Dec. 2 note to clients.
Here are five reasons Lilly stock has been erratic:
1. The company missed Wall Street expectations on third-quarter earnings.
Lilly stunned investors on Oct. 30 when it reported third-quarter adjusted earnings per share of $1.18, far short of the Wall Street consensus of $1.47.
The company also missed sales expectations on Mounjaro and Zepbound, which it attributed to inventory decreases in the wholesaler channel.
Revenue for the quarter was $11.4 billion, up 20%, but short of the $12.0 billion expected by a consensus of Wall Street analysts, according to Chicago-based stock researcher Zack’s.
Eli Lilly said it expected full-year adjusted earnings of $13.02 to $13.52 per share, down from previous guidance of $16.10 to $16.60 per share. The company will report full-year earnings on Feb. 6.
The stock closed down 6.3% that day.
“Lilly’s phenomenal stock performance ran into very elevated valuations and was priced for perfection,” Jared Ruxer, portfolio manager and research analyst at Woodley Farra Manion Portfolio Management in Indianapolis, said in a statement to IBJ. “The [third quarter] earnings report came as a major surprise.”
2. Trump was elected president.
The former president’s victory in the U.S. presidential election has sent the overall stock market higher. But it pushed down shares of health care stocks, including Lilly, which slipped nearly 4% the day after the election.
Analysts say heightened uncertainty about a range of policies that could affect health care companies under the new administration is driving the losses, according to Morningstar.
“Generally, government leadership in health care is looking increasingly unpredictable,” said Karen Anderson, Morningstar’s director of health care equity research.
On the one hand, the push by Trump for more deregulation could make mergers and acquisitions easier for large firms. Ricks has repeatedly said Lilly will avoid large-scale M&A, but the company has spent billions of dollars buying smaller firms during his eight years as CEO.
Morningstar said repealing the Medicare negotiation portion of the Inflation Reduction Act could ease price pressures within the industry. And lower corporate taxes could benefit big business across the board.
“This was an election year, and this always comes with a lot of uncertainty,” said Sheryl-Ann Stephen, professor of finance at Butler University.
3. Robert F. Kennedy Jr. was nominated for secretary of the Health and Human Services Department.
Shares of Lilly fell 3% after Trump announced on Nov. 14 that Kennedy would run HHS, a massive federal department that includes the Food and Drug Administration, Centers for Disease Control and Prevention, the Centers for Medicare and Medicaid Services, the National Institutes of Health and other programs.
Altogether, HHS is one of the largest and most influential federal departments, with 80,000 employees and a $1.7 trillion budget. CMS alone provides health insurance for more than 140 million Americans.
Kennedy has been criticized for making false medical claims, including that vaccines are linked to autism. He has also vowed to purge the U.S. Food and Drug Administration, which drugmakers depend on to review new medicines.
In interviews and on social media, Kennedy has accused FDA staff of doing the bidding of Big Pharma and Big Food, according to Reuters.
“FDA’s war on public health is about to end,” Kennedy wrote on social platform X in late October. “If you work for the FDA and are part of this corrupt system, I have two messages for you: 1. Preserve your records, and 2. Pack your bags.”
Ricks, speaking at The New York Times’ DealBook Summit on Dec. 4, said Lilly would fight to preserve the FDA.
“We’re the only country on Earth that does primary data review,” Ricks said. He added that, “When the company creates data, only the FDA reviews every digit of that data.”
“I think that’s a value to society we need to keep,” he said. “We’ll argue that strongly with our new regulator.”
Kennedy also has said he would oppose the drug industry’s long-standing practice of producing direct-to-consumer pharma advertising. While still in the presidential race earlier this year, according to Fierce Biotech, Kennedy wrote on X, “On my first day in office I will issue an executive order banning pharmaceutical advertising on television.”
Stephen of Butler University said there is now some uncertainty in the markets about FDA regulations and the wider landscape in general for weight-loss drugs. “The appointment of Robert F. Kennedy Jr. as secretary of the Department of Health and Human Services has also added to investors’ concerns,” she told IBJ.
4. President Joe Biden proposed that Medicare and Medicaid cover weight-loss drugs.
Lilly’s shares rose 4.5% on Nov. 26, when Biden proposed weight-loss drug coverage for people on Medicare and Medicaid.
The new rule would expand access to drugs such as Zepbound and Novo Nordisk’s Wegovy for an additional 3.4 million Americans who use Medicare and 4 million people enrolled in Medicaid, according to NBC News.
Medicare has been barred from paying for weight loss drugs for decades, unless they’re used to treat conditions like diabetes or to manage an increased risk of heart disease. State Medicaid programs also have to cover these drugs for indications such as diabetes or cardiovascular-disease-risk reduction, but only 13 states currently cover these drugs for obesity treatment, as well, according to nonprofit health care researcher KFF. (Neither Indiana nor any of its neighbors offer such coverage.)
The Biden administration is proposing to reinterpret the law barring coverage by classifying obesity drugs as treatment for a “chronic disease,” rather than as weight loss medications.
“The medical community today agrees that obesity is a chronic disease,” Centers for Medicare and Medicaid Services Administrator Chiquita Brooks-LaSure said on a call with reporters. “These drugs are the beginning of a revolution in the way that weight is controlled.”
The change would dramatically reduce out-of-pocket costs for the drugs. Today, a month’s supply of weight loss drugs can cost $1,000 or more, according to estimates from a White House official.
The federal government would pick up the majority of that cost, $25 billion for Medicare and $11 billion for Medicaid over 10 years, government officials said, according to San Francisco-based KFF. States will need to pay about $3.8 billion.
“However, some lawmakers and health care groups have raised concerns about the costs of these weight-loss drugs, and it’s not clear what will become of the proposal with the incoming Trump administration,” the Advisory Board, a nonpartisan health care think tank, said in a white paper on Dec. 3.
5. Zepbound won a weight-loss challenge against Wegovy.
Lilly shares climbed 3% on Dec. 4 after the drugmaker announced that Zepbound helped patients lose 47% more relative weight than competitor Novo Nordisk’s obesity treatment Wegovy in a head-to-head clinical trial.
Lilly said Zepbound led to a weight loss of 20.2%, compared with 13.7% with Wegovy.
Participants in the clinical trial lost 50.3 pounds over 72 weeks, compared with 33.1 pounds for participants on Wegovy, which was approved in the United States in March 2022.
Novo Nordisk, based in Copenhagen, Denmark, also makes diabetes treatment Ozempic. Both use the same active pharmaceutical ingredient, known as semaglutide.
The results, while encouraging for Lilly, also put pressure on the company to deliver even better sales in the upcoming quarters. Zepbound, launched just 12 months ago, has rung up $3.1 billion in the first nine months of 2024.
Lilly can also point to diabetes medicine Mounjaro, currently Lilly’s top-selling medicine, which shares its active ingredient, tirzepatide, with Zepbound. (The drugs are identical but are sold under different brands.)
Mounjaro, launched in 2022, racked up $5.16 billion in sales last year and has topped $8 billion through the first three quarters of 2024.
By 2029, analysts expect Zepbound to bring in $30 billion in sales, and Mounjaro to bring in $20.3 billion.
In addition, Lilly has launched more than 20 drugs in the past decade, and has a full pipeline full of experimental medicines, from Alzheimer’s disease treatments to Crohn’s disease medicines.
Tom Kaiser and J.R. Humphreys, portfolio managers at Sheaff Brock Investment Advisors, told IBJ that Lilly’s growth story continues to look strong.
“The demand for Lilly products continues to be very robust, and the stock continues to look strong longer-term despite some near-term volatility,” they wrote. “Periods of consolidation are to be expected as part of normal and healthy market behavior.”
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