
Yesterday, weight-loss drug maker Eli Lilly reported solid numbers before the opening bell, which easily beat expectations on all fronts. Revenue increased by 38% to $15.5 billion thanks to big volume growth from Zepbound and Mounjaro. Mounjaro, primarily marketed for diabetes, grew sales from $3.8 billion last quarter to $5.2 billion. Zepbound is the same formulation but is sold as a weight loss drug; that grew sales from $2.3 billion last quarter to $3.3 billion.
Impressively, gross margins increased from 80.8% to 84.3%. As the sales of these weight-loss drugs ramp up, the margins are increasing too. Remember, the big spending has already been done on developing these products.
Having said that, they are still investing $3.34 billion or 21% of revenue on R&D, looking to keep their drug pipeline well primed. It's good to know that their scientists are working to discover the next big thing, we don't want our hard-working employees (as shareholders, we are the boss) standing still.
Lilly's sales and profit guidance was also very encouraging with healthy hikes in sales and earnings expectations coming through from the management team.
The numbers were served up like a hearty plate of lamb stew - rich and satisfying - only to be spoiled by the unexpected release of data from a late-stage trial of an oral version of the GLP-1 drug that slightly underperformed expectations. It was like a heavy-handed sprinkle of coriander, overpowering the dish. Lilly stock fell 14.1% on the day.
Eli Lilly's obesity pill orforglipron is supposed to be the blockbuster alternative to the injectable versions, and is expected to hit the market later this year. In late-stage trials it led to average weight loss of 12.4% of the patient's body weight over 72 weeks, lower than the 13 to 15% which had been expected. The trial also showed that a few patients dropped out due to negative side effects, the usual gastro-intestinal discomforts.
The difference between 12% and 13% weight loss on a 120 kg person is only 1.2 kgs. We think that the market is overreacting. Lilly's Chief Scientific Officer and president of research labs, Daniel Skovronsky, said during the Q&A portion of the company's earnings call on Thursday "This is as good as it gets for GLP-1 monotherapy with a once-a-day small molecule tablet."
Eli Lilly is dragging, but keep in mind that almost all healthcare stocks are taking strain this year, the Trump administration is not going easy on the sector. We believe that Eli Lilly will be the least affected by tariffs and other regulations because they are an all-American company.
We think that this is a long-term buying opportunity into what we believe is a great theme. Most Vestact clients are in the red on their Eli Lilly position. We are sorry about that, but more patience is going to be required.