LLY

One of the major pharmaceutical manufacturers in the world, which showed 10x growth in value for the last 5 years, dropped by double digit percentage this week. Eli Lilly lost more than $200 per share, or nearly 20% of its peaking market caps, compared to the company's all-time highs at $972.5 in August. This story gives us a tremendous opportunity to acquire a clearly attractive asset at a very good price. A fast bounce back to the northern border of the new range above $850, from the opening price below $800 on October 30 with local intraday dips detected at $769.75, freshly confirmed a flurry of interest among the investing crowd for a stronger recovery potential. At the same time, a wide daily range already in the first hours after Eli Lilly's earnings' report gives everyone additional time to choose a better price to enter the market, as we may expect more dips below $800 or even an attempt to slide further with an exclusively brief visit to the levels between $700 and $750, where risk-on strategies may even strengthen bullish positioning.

The reason behind Eli Lilly's sharp plunge was that its weight-loss drug sales substantially missed overly optimistic expectations. Analyst polls forecasted $4.20 billion for quarterly sales of diabetes treatment Mounjaro and $1.69 billion for Zepbound, which is another brand name for the same medication tirzepatide, regulatory approved for weight management in the U.S. and some other countries. Consensus saw the drug may provide the company with $19 billion of revenue before the end of this year. Now the market found that this would not happen, because sales of Mounjaro from July to September was $3.11 billion only, while sales of Zepbound were $1.26 billion. Of course, the firm posted EPS (earnings per share) of $1.18 only for Q3, failing much of the consensus at $1.45. Its total revenue came in at $11.44 billion instead of $12.09 billion, even though the number rose by 20% YoY.

Lilly commented this still reflected "continued strong demand", yet had to cut its full-year profit projection from the previous range between $16.10 and $16.60 per share to a much lower range between $13.02 and $13.52. Eli Lilly tried to reference $2.8 billion acquisition-related charges in the third quarter, yet also "higher manufacturing costs" was cited as well. The company kept the lower end for supposed sales range at $45.4 billion but lowered the upper end by $600 million to $46 billion.

As to the two tirzepatide-based drugs, Eli Lilly's CEO David Ricks admitted "there is an excess supply... but we haven't been stimulating demand the way we had originally planned," adding that his company delayed plans to advertise weight-loss drug Zepbound while also postponing international launches of production and distribution to focus on "increasing inventory levels in the U.S." Thus, sales of both Mounjaro and Zepbound "decreased by mid-single digits", derailed by "inventory changes" after Eli Lilly reportedly invested $7 billion in its Indiana site and facilities in Ireland to expand production. From our point of view, this may be a planning error that led to a partial deflation of a vast bubble of expectations, but it does not mean that the whole project was something like a big bubble. Discounting market price may reflect only a temporary and rather small trouble with marketing promotion plans for very popular new products, which are still in a bid demand. And so, a 20% or 25% correction of market value could be enough to revive the investment interest for the stock. Eventual recovery to the levels above $950 looks almost inevitable.