Eli Lilly'Blockbuster weight-loss drug Zepbound and diabetes treatment Mounjaro posted weaker-than-expected third-quarter sales, even as supply of both drugs has largely recovered from widespread shortages in the US.
According to the company, the reason for the disappointing sales is not a matter of supply or demand.
During an earnings call Wednesday, Eli Lilly blamed drug wholesalers for lowering stocks of Zepbound and Mounjaro. Wholesalers buy medications from manufacturers and sell them to hospitals, clinics, pharmacies and other health care providers.
The increase in supply allowed Eli Lilly to fulfill wholesale backorders in the second quarter, which the pharmaceutical giant said led to increased inventory of Zepbound and Mounjaro during that period.
But those wholesalers tapped into some of that existing inventory in the third quarter instead of buying more from the company, dampening revenue from both treatments, Eli Lilly said.
Mounjaro's third-quarter revenue of $3.11 billion fell well short of the $3.7 billion analysts expected, according to StreetAccount estimates. Zepbound's revenue for the quarter was $1.26 billion, missing the $1.76 billion expected by analysts.
“The main culprit was an inventory drain on Mounjaro and Zepbound… and not weaker demand,” Citi analyst Geoff Meacham wrote in a research note on Wednesday.
Jared Holz, Mizuho's healthcare strategist, wrote in an email that the “destocking” — or selling existing stocks for the drugs instead of stockpiling more — was a surprise, especially given the large ask about the treatments.
But he said Eli Lilly has invested $10 billion to $15 billion this year alone to expand manufacturing capacity for its injectable drugs, which should “help reverse some of the trends reported during this period.” turn.”
Still, some analysts wonder whether the inventory problem can explain everything that happened to Zepbound and Mounjaro sales in the third quarter. This factor likely explains “only a fraction,” or about 20%, of the drugs' revenue losses, Barclays analyst Carter Gould wrote in a note Wednesday.
Demand for weight loss and diabetes injections has exceeded supply in the past two years.
But Eli Lilly's supply problems began to ease earlier this year, and the Food and Drug Administration removed tirzepatide, the active ingredient in Mounjaro and Zepbound, from the shortage list.
Earlier this month, a trade group representing compounding pharmacies, which make customized and often cheaper alternatives to brand-name drug shortages, sued the FDA. The group said tirzepatide is still in short supply and should therefore remain on the shortage list, leading the agency to reconsider its decision.
During the earnings call, Eli Lilly executives emphasized that underlying demand for the drugs remained strong.
“Is there a demand problem? No,” said Eli Lilly CEO Dave Ricks, pointing instead to “a lot of lumpiness in channel supply.”
“I don't think we actually have any control and we don't try to, but the reality is that Lilly's downstream customers, wholesalers and retailers, make their own decisions about which of the twelve different dosage forms they want to stock at what level” , said Ricks.
He noted that wholesalers face a number of constraints, including financial pressures. They also face capacity constraints in the 'cold chain', or maintain a temperature-controlled supply chain that ensures the quality of medicines from production to delivery.
Ricks said Eli Lilly had yet to begin what the company calls “demand-driving activities,” or advertising and promotion, for Zepbound. The drugmaker will begin these efforts in November, he said.
That includes providing drug samples to healthcare providers.
Eli Lilly is also investing heavily in its direct-to-consumer website, which offers telehealth prescriptions and direct home delivery of certain medications to increase patient access, executives said on the call.
Ricks dismissed the idea that the quarter's disappointing sales were due to competition from composite versions of Mounjaro and Zepbound.
“We don't really see a financial impact on Lilly from compounding,” Ricks said.