UPDATE: Lilly shares tumble on earnings report that falls short of Wall Street expectations

Eli Lilly and Co. on Wednesday reported a third-quarter profit of $970.3 million, falling short of Wall Street expectations, and revised its full-year profit guidance down, a move that sent its stock falling as much as 10% in premarket trading.

The Indianapolis-based drugmaker also missed expectations on sales of two popular drugs, diabetes treatment Mounjaro and weight-loss treatment Zepbound, which it attributed to inventory decreases in the wholesaler channel.

Shares of Lilly were down $71.50, or 7.9%, in afternoon trading, to $832 each, after falling to a low of $769 earlier Wednesday. Year to date, the stock is up more than 42%.

Lilly has been investing billions of dollars in new manufacturing operations in recent years to keep up with growing demand for its medicines, including more than $13 billion in the LEAP Research and Innovation District in Boone County.

Revenue for the quarter was $11.43 billion, up 20%, but short of the $12.03 billion expected by a consensus of Wall Street analysts, according to Zack’s.

Lilly posted adjusted  earnings per share of $1.18, short of the $1.53 consensus.

The company said its expects full-year adjusted earnings per share in the range of $13.02 to $13.52. That’s down from guidance three months ago, when the company said it expected full-year adjusted earnings in the range of $16.10 to $16.60.

Sales of Mounjaro, the company’s top-selling product, which launched two years ago, were $3.1 billion in the quarter, up from $1.4 billion in the same period a year ago. Sales of Zepbound, which launched in December, were $1.26 billion in the quarter.

Both drugs, which use the same active ingredient, tirzepatide, saw brisk sales, but missed Wall Street expectations. Analysts were expecting Mounjaro to ring up $3.7 billion and Zepbound to post $1.5 billion in sales, according to Zack’s.

The drugs are referred to as incretin, a class of drugs that that mimic the effects of natural hormones to help lower blood-sugar levels and lose weight.

“While the growth of Mounjaro and Zepbound is impressive, we are equally proud of the 17% growth in non-incretin revenue, which includes our oncology, immunology and neuroscience portfolios, compared with Q3 2023 on the same basis,” CEO David Ricks said in written remarks.

Research and development expenses increased 13%, to $2.73 billion, or 23.9% of revenue, driven by investments in the company’s early and late-stage portfolio.

Marketing, selling and administrative expenses increased 16%, to $2.10 billion, in the third quarter, primarily driven by promotional efforts supporting ongoing and future launches. 

TD Cowen analyst Steve Scala said in a note that sales of both drugs missed expectations, and he wanted to learn more about whether the drop was a “temporary flattening or new trend.”

Leerink Partners analyst David Risinger said separately that although Lilly’s results were disappointing, he is keeping his “outperform” rating on the stock. He noted that Lilly “is just getting started in commercializing obesity products globally.”

Ricks told analysts Wednesday that demand for Mounjaro and Zepbound has been strong and continues to grow. He also said all doses were available.

Company leaders also said that versions of tirzepatide, the active ingredient behind Mounjaro and Zepbound, made by compounding pharmacies didn’t have a huge financial impact on the company but posed a safety concern.