Eli Lilly’s Q3 Miss for Mounjaro, Zepbound Highlights Dependency on Wholesalers

Just when things were going well for Eli Lilly, it reported third-quarter earnings on Wednesday that were well below analysts’ expectations. Sales of Lilly’s type 2 diabetes drug Mounjaro and weight loss medication Zepbound—which share the same active ingredient, tirzepatide—both fell short of Wall Street forecasts. It was a rare quarterly miss for Lilly that prompted the company to lower its full-year 2024 guidance and sent the company’s stock falling more than 13% in Wednesday morning trading.

The culprit behind Mounjaro and Zepbound’s disappointing Q3 sales? “[I]nventory decreases in the wholesaler channel” following higher inventoried levels at the end of Q2, according to the company’s earnings announcement. In a nutshell, Lilly blamed wholesaler destocking of its blockbuster drugs, which had been built up in previous quarters.

Anyone who has followed the red hot GLP-1 market is keenly aware of the volatile supply chain that Lilly and rival Novo Nordisk have tried to navigate, with both companies investing billions of dollars to ramp up their respective manufacturing capabilities in an attempt to keep up with unprecedented demand. Doses of both companies’ GLP-1s wound up on the FDA’s shortage list. The agency recently removed Mounjaro and Zepbound from the list but is currently rethinking that decision. Meanwhile, the FDA declared this week that all doses of Novo Nordisk’s Ozempic and Wegovy are now available.

Lilly’s Q3 results on Wednesday added a new wrinkle to the already challenging supply chain dynamics. Lilly CEO Dave Ricks in Wednesday’s earnings call told analysts that the revenue miss for the GLP-1 drugs was not a function of supply but rather was due to wholesalers cutting down on their inventories. Lilly’s wholesalers and retailers “are making their own decisions about which of the 12 different dosage forms they want to stock” and at what levels, Ricks said—something he conceded “we really don’t control and don’t attempt to.”

Also on the call, CFO Lucas Montarce estimated that inventory decreases in the wholesaler channel impacted sales of Mounjaro and Zepbound by mid-single digits as a percent of aggregate U.S. sales of these products. “While Mounjaro and Zepbound demand remains strong and growing, quarter-by-quarter revenue growth in 2024 has been impacted by supply and channel dynamics,” Montarce said.

Leerink Partners analyst David Risinger in a note said Lilly’s Investor Relations (IR) provided his firm with additional information on how U.S. channel destocking works, including the fact that wholesalers are facing financial pressures and are tightly managing working capital.

“In light of IR’s comments, it strikes us that wholesalers are probably inclined to maintain minimum tirzepatide inventory levels since LLY is unlikely to raise list prices,” Risinger wrote, noting that “wholesalers enjoy extra profits on inventory held when manufacturers raise list prices.”

Truist Securities analyst Srikripa Devarakonda also highlighted that the wholesalers “may find themselves in uncharted territory when it comes to accurately stocking and managing up to 12-different doses of cold-chain product (in addn to Novo’s franchise) in volumes that they may be unaccustomed to, which may be quite capital intensive.”

While Devarakonda chalked it up as “growing pains” and a learning curve, BMO Capital Markets analyst Evan Seigerman was less sanguine in his assessment that Lilly now has “immense pressure” to perform in Q4.

Seigerman warned in a note to investors that Q4 results “will become a make or break moment for the company—there is no room for error.”

While Ricks emphasized that U.S. demand for Mounjaro and Zepbound “has been strong and continues to grow as we expand both access and supply,” Seigerman noted that building inventory will be key to a successful Q4. The problem, as Ricks explained on this week’s call, is that Lilly is at the mercy of wholesaler stocking decisions.