The management said there is "no problem" with the demand, but wholesalers are prioritizing inventory clearance. Will the popular weight-loss pills, which are in high demand, also face a demand crisis?
As financial reports 'explode,' industry giants' stock prices fall below key levels, and even the 'hot' weight-loss drugs are facing a demand crisis?
Affected by poor sales of popular weight-loss drugs Zepbound and Mounjaro, eli lilly's Q3 revenue and profits fell short of expectations, leading the company to also lower its full-year financial guidance. As a result, the company's stock price plummeted 12% in pre-market trading on Wednesday and closed 6% lower for the day, breaking below the 200-day moving average.
Currently, the focus of controversy lies in whether there is a decline in demand for weight-loss drugs. In a conference call, eli lilly executives attributed poor sales to wholesalers destocking drugs, and reiterated that there is 'no issue' with drug demand. However, some analysts believe that wholesalers destocking drugs can only partially explain the sales decline, and whether popular weight-loss drugs are facing a turning point in demand is currently 'very unclear.'
It is worth noting that eli lilly's downward revision of sales expectations is not an isolated case. Earlier in August, another weight-loss drug giant, novo-nordisk a/s, also lowered its full-year profit forecast, with quarterly sales of its popular weight-loss drug Wegovy falling notably below expectations.
Management says there is 'no issue' with demand, but wholesalers are prioritizing destocking?
In terms of financial data, eli lilly's popular weight-loss drugs Zepbound and Mounjaro had Q3 sales figures that fell significantly short of market expectations: Mounjaro's quarterly sales were $3.11 billion, below the market's expected $3.77 billion; Zepbound's quarterly sales were $1.26 billion, below the market's expected $1.73 billion.
For the poor sales of weight-loss drugs, Eli Lilly and Co attributed the issue to pharmaceutical wholesalers cutting back on inventory of Zepbound and Mounjaro. Traditionally, pharmaceutical wholesalers purchase drugs from manufacturers and then sell them to hospitals, clinics, pharmacies, and other medical care providers.
Eli Lilly and Co stated that, due to continued production expansion, increased supply enabled the company to fulfill wholesalers' backlogged orders from the past in the second quarter, resulting in an increase in inventory of Zepbound and Mounjaro.
However, despite continued high demand, wholesalers reduced new drug orders in the third quarter, primarily to digest existing inventory, which ultimately suppressed drug sales revenue.
Eli Lilly and Co's executives insist that the potential demand for weight-loss drugs remains strong. The CEO of Eli Lilly and Co stated:
Is there a demand issue? No! Currently, there are significant issues with channel stocking.
The reality is that Eli Lilly and Co's downstream customers, wholesalers, and retailers are deciding on their own at what level to stock which of the 12 different formulations.
Ryusui Pharmaceutical analyst Jared Holz commented that the company's management and wholesalers are currently sending out 'mixed signals':
"Inventory reduction" - selling existing pharmaceutical inventory rather than stockpiling more drugs - comes as a surprise, especially in cases where the demand for these therapeutic drugs is high.
Some analysts question whether inventory issues can explain all the reasons for the decline in drug sales in Q3. Barclays analyst Carter Gould stated in Wednesday's report that inventory issues may only explain "a small part" of the decline in revenue for these two drugs, around 20%.
Citigroup analyst Geoff Meacham is relatively optimistic, stating that the poor performance in weight loss drug sales is not due to "soft demand". Given eli lilly and co's "strong fundamentals" in the medical care industry, we will be "actively buying" when the stock price is weak.
Is there a "new balance" in the supply and demand of weight loss drugs?
In the real world, the supply and demand scenario for popular weight loss drugs faces a more complex game.
As a 'cash cow' for pharmaceutical manufacturers, one of the reasons why best-selling weight loss drugs like Zepbound are so profitable is their high pricing: the monthly cost of Zepbound is approximately $1,000. Due to limited alternatives and high demand, patients have to accept this price but are constantly seeking cheaper versions.
Some generic drug manufacturers previously took advantage of the high demand for weight loss drugs by producing lower-priced generic versions.
According to the regulations of the Food and Drug Administration (FDA) in the USA, when a drug is in short supply, the FDA allows pharmacies and generic drug manufacturers to produce compound or modified versions of the same type of drug provided they meet specific regulatory requirements. With eli lilly and co's Zepbound being in short supply for most of the past year, this loophole has led multiple generic drug manufacturers to produce and sell cheaper versions of the branded weight loss drug (compounding pharmacies).
Eli Lilly is trying to plug this loophole. In terms of supply, just this year, Eli Lilly has spent 100-15 billion US dollars to expand the production of weight loss drugs, and the problem of tight supply has been partially alleviated.
Earlier this month, the FDA announced that Eli Lilly's Zepbound shortage issue with the active ingredient tirzepatide has been resolved, and Eli Lilly then quickly began sending cease-and-desist letters to companies selling generic products.
An industry organization representing dispensing pharmacies subsequently sued the FDA. These dispensing pharmacies produce custom-made, usually cheaper substitute brand drugs for shortages. The organization states that tirzepatide is still in short supply, so it should remain on the shortage list, and the FDA needs to reconsider its decision.
While plugging the supply loophole, Eli Lilly also plans to use promotional methods to increase sales.
During Wednesday's conference call, Eli Lilly's management stated that the company has not yet started so-called 'demand stimulation activities' for Zepbound, such as advertising and promotions. Promotion activities will start in November. The company will also heavily invest in its direct-to-consumer website, which provides remote medical prescriptions and direct home delivery services for certain drugs, to expand patients' medication channels.
However, after experiencing continuous production expansion, the weight loss drug market may face a 'new normal' of supply and demand: Novo-Nordisk's popular GLP-1 weight loss drug, semaglutide, set a quarterly historical sales record of 30 billion US dollars last December, but has not reached such a peak since.
