Eli Lilly and CompanyThird-quarter sales of blockbuster diet drug Zepbound and diabetes treatment Mounjaro fell short of expectations, even as supplies of both drugs have largely recovered from widespread U.S. shortages
The company said the cause was not a demand or supply issue.
Instead, Eli Lilly blamed the disappointing sales on drug wholesalers cutting inventories of Zepbound and Mounjaro. Wholesalers purchase drugs from manufacturers and sell them to hospitals, clinics, pharmacies, and other health care providers.
The increased supply allowed Eli Lilly to fulfill backorders from wholesalers in the second quarter, leading to higher inventories at Zepbound and Mounjaro, according to the pharma giant.
But Eli Lilly said those wholesalers used some of their existing inventory in the third quarter rather than buying more from the company, denting revenue from both treatments.
Mounjaro’s third-quarter sales were $3.11 billion, according to StreetAccount estimates, well below analysts’ expectations of $3.7 billion. Zepbound’s sales for the quarter were $1.26 billion, missing analysts’ expectations of $1.76 billion.
“The culprit is the hit to Mounjaro and Zepbound inventories… rather than weak demand,” Citi analyst Geoff Meacham wrote in a research note on Wednesday.
Jared Holz, equity strategist at Mizuho Healthcare, wrote in an email that “destocking” — that is, selling existing drug stocks rather than adding to them — is surprising, especially This is at a time when the demand for therapeutic drugs is high.
But he said Eli Lilly’s investment of $10 billion to $15 billion this year alone to expand manufacturing capabilities for its injectable drugs should “help reverse some of the trends reported in this period.”
Still, some analysts question whether inventory issues can explain Zepbound and Mounjaro’s third-quarter sales. Barclays analyst Carter Gould wrote in a note on Wednesday that this factor likely explains “a small portion,” or about 20%, of lost drug revenue.
Demand for weight loss and diabetes injections has outstripped supply over the past two years.
But Eli Lilly’s supply woes began to ease earlier this year, when the U.S. Food and Drug Administration removed Mounjaro and Zepbound’s active ingredient, tezepatide, from its shortage list.
Earlier this month, a trade group representing compounding pharmacies, which offer customized and often cheaper alternatives to brand-name drugs that are in short supply, sued the FDA. The organization said tilsiparatide remains in short supply and should remain on the shortage list, leading the agency to reconsider its decision.
On an earnings call Wednesday, Eli Lilly executives insisted that underlying demand for the drug remained strong.
“Is there a demand issue? No,” said Eli Lilly CEO Dave Ricks, noting that “there’s a big issue with access inventory.”
“I think we really don’t have control and we don’t try to control it, but the reality is that Eli Lilly’s downstream customers, wholesalers and retailers are making their own decisions about which of the 12 different dosage forms they want to stock. At what level, ” said Ricks.
He noted that wholesalers are dealing with a number of constraints, including financial pressures. They must also deal with “cold chain” capacity constraints, or maintaining temperature-controlled supply chains, to ensure the quality of drugs from production to delivery.
Ricks said Eli Lilly has not yet begun what the company calls a “demand stimulus campaign,” or advertising and promotion, for Zepbound. The drugmaker will begin those efforts in November, he said.
This will include providing drug samples to healthcare providers
Lilly is also investing heavily in its direct-to-consumer website, which offers telemedicine prescriptions and direct home delivery of certain drugs to expand patient access, executives said on the call.
Ricks dismissed the idea that this season’s disappointing sales results were due to competition from Mounjaro and Zepbound hybrid releases.
“We don’t really see the financial impact of compounding on Eli Lilly,” Ricks said.
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