Investors need to know whether Eli Lilly is seeing the identical pricing pressures on its blockbuster weight reduction drug Zepbound that Novo Nordisk experienced with its competing drug Wegovy within the second quarter. Novo Nordisk shocked investors on Wednesday when its latest results fell wanting Wall Street’s expectations. Shares are reeling, down 8%, after the corporate lowered its forecast for 2024 operating profit growth. Eli Lilly is scheduled to report its second-quarter results before the market opens on Thursday. Analysts surveyed by LSEG expect the drugmaker to earn $2.60 per share on revenue of $9.92 billion. Helping to drive the nearly 19% expected revenue growth from the second quarter of 2023, is demand for Lilly’s GLP-1 drugs Mounjaro and Zepbound, also referred to as tirzepatide. But Novo’s results triggered some selling of Lilly’s stock on Wednesday, with shares down 3%. While Eli Lilly’s stock stays up about 32% yr up to now, concerns about increasing competition within the category have resulted in a virtually 16% decline for Lilly shares over the past month. The outlook for the obesity drugs will largely determine where shares head from here, analysts say. LLY YTD mountain Eli Lilly shares yr up to now Why the stocks are under pressure Novo Nordisk has been working hard to spice up manufacturing capability for its popular GLP-1 drugs and expand access to Medicaid patients. Management said each of those efforts will help its long-term growth, but they’ve hurt performance within the near term. Eli Lilly is making similar attempts with Zepbound, but its launch is at an earlier stage than Wegovy. Second-quarter sales of Ozempic, Novo’s diabetes treatment, rose 4% from the primary quarter, while Wegovy revenue grew 24% quarter over quarter. Nonetheless, Wells Fargo analyst Mohit Bansal noted that the variety of prescriptions written for Ozempic within the second quarter was up 17%, while Wegovy scripts grew 58%, based on IQVIA, over the identical time period. Partially, Wegovy’s net price is declining as a result of efforts to expand access to Medicaid patients in 20 states. While patients enrolled within the federal medical insurance program typically aren’t covered for weight reduction medications, the Food and Drug Administration approved Wegovy for use as a option to prevent heart attacks and strokes in individuals with heart problems who’re obese or obese. This ruling opened the door for expanded coverage. “Their [Novo Nordisk management’s] focus is on securing supply to deal with as many patients as possible, and noted that price typically declines with increasing volume,” Bansal wrote in a research note Wednesday. Barclays analyst Emily Field told clients in a research note that she can be a buyer of Novo Nordisk shares on the weakness. “Was this the image perfect quarter we would hoped for? Not necessarily,” she said. “But at the top of the day, obesity goes to be a volume driven market and the overwhelming message we got from the corporate this morning is that volume is on target.” Prices moving to parity? It is also essential to do not forget that Wegovy is priced at a premium to Zepbound. “It stays to be seen if additional rebates for the upper priced Wegovy may very well be driving down overall prices, or if it’s just trending towards achieving parity pricing vs. Zepbound,” Bansal said, adding that the demand for these medications, which mimic incretin hormones to suppress appetite and control blood sugar, stays strong. Bansal expects Lilly’s diabetes treatment, Mounjaro, saw a 14% increase in volume from the primary quarter to the second quarter, while Zepbound volume rose 59% over the identical period. But how pricing shaped up won’t be known until results are released Thursday. Bansal said he expects each drugs will top estimates even when price weakened somewhat through the quarter. “Ultimately, the general demand environment for incretins continues to stay very strong with NVO increasing FY24 top-line guidance by 2% on the midpoint after a 1% increase last quarter,” he said. Lilly could adjust its revenue forecast as well, especially in light of producing gains it has made, which has helped removed tirzepatide from the FDA’s shortage list. Pipeline progress David Song, an investment partner at Tema ETFs, said investors also will likely be specializing in any updates Lilly provides for the drugs it has in development. Song said Lilly has “a pole position” with orforglipron, an oral GLP-1 drug it’s developing. Nonetheless, there are other pipeline updates that will likely be highly anticipated within the second half of the yr, including data from Amgen on MariTide and Novo on CagriSema. JPMorgan analyst Chris Schott expects health outcomes data for tirzepatide will likely be a key catalyst for Lilly’s stock in the approaching months. “While there have been various early stage pipeline updates from competitors within the obesity space, we don’t see these agents as differentiated or as prone to dislodge meaningful share and our view that LLY and Novo will remain dominant within the incretin space stays unchanged,” said Schott. He expects Mounjaro and Zepbound to succeed in $16.5 billion in sales by the top of this yr, then grow to $27 billion by 2025. By 2026, sales should reach $36.5 billion.
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