Investors want to know if Eli Lilly is seeing the same pricing pressure on its popular weight-loss drug Zepbound that Novo Nordisk faced with its rival Wegovy in the second quarter. Novo Nordisk shocked investors on Wednesday when its latest results fell short of Wall Street expectations. Shares are swinging, as much as 8%, after the company cut its operating profit growth forecast for 2024. Eli Lilly is scheduled to report second-quarter results before the market opens on Thursday. Analysts surveyed by LSEG expect the drugmaker to earn $2.60 a share on revenue of $9.92 billion. Demand for Lilly’s GLP-1 drugs Mounjaro and Zepbound, also known as tirzepatide, is helping drive revenue growth of about 19% in the second quarter of 2023. But Novo’s results sparked some selling in Lilly shares on Wednesday, with shares down 3%. While Eli Lilly stock is up about 32% so far this year, concerns about increased competition in the category have sent Lilly shares down about 16% over the past month. Analysts say the outlook for obesity drugs will largely determine where the stock goes from here. mount LLY YTD Eli Lilly stock so far this year Why stocks are under pressure Novo Nordisk is working hard to boost manufacturing capacity for its popular GLP-1 drug and expand access to Medicaid patients. Management has said both of those efforts will help its long-term growth, but they’ve hurt performance in the near term. Eli Lilly is making similar efforts with Zepbound, but its launch is at an early stage of its launch of wegovy. Second-quarter sales of Ozempic, Novo’s diabetes treatment, rose 4% from the first quarter, while wegovy’s revenue grew 24% quarter-over-quarter. However, Wells Fargo analyst Mohit Bansal noted that prescriptions for Ozempic in the second quarter rose 17%, while Wegovy prescriptions grew 58%, according to IQVIA, over the same period. That’s partly because Wegovy’s net price has fallen due to efforts to expand access to Medicaid patients in 20 states. While patients enrolled in the federal health insurance program typically aren’t covered for weight-loss drugs, the FDA approved Wegovy as a way to prevent heart attacks and strokes in people with cardiovascular disease who are overweight or obese. That ruling opened the door to expanded coverage. “Their (Novo Nordisk management) focus is on securing supplies to treat as many patients as possible,” Bansal wrote in a research note Wednesday, noting that the price typically comes down as volume increases. Barclays analyst Emily Field told clients in a research note that she would be a buyer of Novo Nordisk shares on weakness. “Was this quarter the picture-perfect quarter we were hoping for? Not necessarily,” she said. “But ultimately, obesity is going to be a volume-driven market and the overwhelming message we got from the company this morning is that volume is on track.” Will prices move toward parity? It’s also important to remember that Wegovy is priced higher than Zebound. “It remains to be seen whether the additional discounts on the higher-priced Wegovy can drive down overall prices, or whether it’s just moving toward parity pricing versus Zebound,” Bansal said, adding that demand for these drugs, which mimic incretin hormones to suppress appetite and control blood sugar, remains strong. Bansal expects Lilly’s diabetes treatment, Mujaro, to see a 14% increase in volume from the first quarter to the second quarter, while Zebound volumes rose 59% over the same period. But how prices will play out won’t be known until results are released on Thursday. Bansal said he expects both drugs to beat estimates even if pricing weakens somewhat during the quarter. “Ultimately, the overall demand environment for incretins remains very strong with NVO increasing FY24 top-line guidance 2% at the midpoint after a 1% increase last quarter,” he said. Lilly could also adjust its revenue outlook, especially given its manufacturing gains, which helped get tirzepatide removed from the FDA’s shortage list. Pipeline Progress Investors will also be focused on any updates Lilly provides on its drugs in development, said David Song, investment partner at Tema ETFs. Song said Lilly has a “leading position” with orforgliprone, an oral GLP-1 drug it is developing. However, other pipeline updates will be highly anticipated in the second half of the year, including data from Amgen on Maritide and Novo on Cagri-Sima. JPMorgan analyst Chris Schutte expects tirzepatide health outcomes data to be a major catalyst for Lilly stock in the coming months. “While there have been a number of early pipeline updates from competitors in the obesity space, we do not see these factors as differentiating or likely to displace significant share, and our view that Lilly and Novo will remain dominant in the incretin space remains unchanged,” said Schott. Sales of Mojaro and Zipond are expected to reach $16.5 billion by the end of this year, then grow to $27 billion by 2025. By 2026, sales are expected to reach $36.5 billion.
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