Key Points
Investors were spooked by a peer’s notable reduction in sales and profitability guidance.
This peer was Novo Nordisk, which like Eli Lilly sells a popular drug approved specifically for obesity.
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One of the more popular stocks in the pharmaceutical sector of late got the cold shoulder from investors on Tuesday. Eli Lilly (NYSE: LLY) closed today’s trading session down by almost 6% in value, which was notably worse than the 0.3% drop of the bellwether S&P 500 index. That decline wasn’t necessarily Eli Lilly’s fault, though.
Reducing weight, reducing guidance
Eli Lilly’s recent popularity is due in no small measure to its plunge into the highly lucrative weight-loss drug market. In late 2023, its Zepbound — essentially the same treatment as its diabetes drug Mounjaro — was approved to treat obesity, and the company was off to the races.
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On Tuesday, though, the standard-bearer for the segment took quite a tumble. That was Novo Nordisk, which this morning lowered its guidance for both full-year sales and operating profit.
The growth forecast for the former was reduced to 8% to 14% over the 2024 tally (previous guidance range: 13% to 21%). Ditto for operating profit, which is now expected to rise in a range of 10% to 16%. That would be encouraging, if it weren’t for the fact that management’s preceding prediction was 16% to 24%.
Novo Nordisk is known for developing and selling Wegovy, the first GLP-1 drug approved by the U.S. Food and Drug Administration specifically for weight loss. The company has flown to renown and admiration on the wings of that drug, which remains a key product. Investors probably fear that Eli Lilly’s Zepbound will also perform worse than expected.
Not an emergency
I don’t think anyone should push the panic button on Eli Lilly due to this (or Novo Nordisk, while I’m at it). Demand for obesity drugs remains strong and nearly unlimited, so both Zepbound and Wegovy — which still benefit from a lack of competitors, at least for now — should continue to be growth drivers.
Also, in the case of Eli Lilly, the sprawling pharmaceutical company has a vast portfolio and a very wide development pipeline, so it’s hardly dependent on one drug — no matter how currently popular that drug might be.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
