American pharmaceutical giant Eli Lilly recently released its financial forecast for the year 2024. However, the company’s stock plunged dramatically after the announcement, marking its largest intraday drop in nearly three years. This decline was primarily driven by the disappointing guidance for Q4 2024, which failed to meet analysts' expectations, raising concerns among investors about Eli Lilly’s future outlook. This article will delve into Eli Lilly's financial results and analyze the primary reasons behind the sharp drop in its stock price.

Financial Overview: Positive Overall Performance, But Q4 Falls Short

According to the latest financial guidance released by Eli Lilly, the company expects its revenue for 2024 to reach around $45 billion, reflecting a 32% year-over-year increase. The growth has been largely driven by strong performances from its diabetes and weight loss drugs, such as Mounjaro and Zepbound, as well as solid results in oncology, immunology, and neuroscience.

However, despite strong annual performance, Eli Lilly’s Q4 revenue guidance has been disappointing for investors. The company expects Q4 global revenue to be approximately $13.5 billion, a 45% year-over-year increase, but this figure falls significantly short of the analyst consensus estimate of $14 billion. This revenue shortfall is primarily due to the underperformance of its blockbuster weight loss drugs, Mounjaro and Zepbound. Specifically, Mounjaro (for diabetes treatment) is expected to generate about $3.5 billion in Q4 revenue, lower than the market’s forecast of $4.4 billion. Meanwhile, Zepbound (for weight loss) is expected to bring in $1.9 billion, falling short of the expected $2.2 billion.

Stock Price Plunge: Market's Strong Reaction to Forecasting Errors

Following the earnings report, Eli Lilly’s stock price took a significant hit. On January 14, following the market open, the stock dropped by over 9%, marking the largest intraday decline since March 2021. By the close of trading, the stock had fallen by 6.59%, to $744.91 per share, with the company’s market value dropping to $707.15 billion.

This dramatic drop in stock price reflects market disappointment with Eli Lilly’s failure to accurately forecast the demand for its weight loss and diabetes drugs. Analysts pointed out that Eli Lilly’s performance in Q4 did not meet its previously strong financial guidance, particularly given the importance of the quarter and the underperformance of Mounjaro and Zepbound sales, which directly contributed to the sharp stock price fluctuations.

Analysis of the Reasons Behind the Stock Decline: Fluctuating Demand for Weight Loss Drugs

The primary reason behind the stock drop is the underperformance of Mounjaro and Zepbound, Eli Lilly’s weight loss drugs. Despite the company’s $20 billion investment to ramp up production, there has been an oversupply of the drugs, with demand growth not meeting expectations. Eli Lilly overestimated market demand, resulting in inventory buildup, which impacted sales performance.

Additionally, the lower-than-expected inventory in the year-end channel also contributed to the Q4 revenue shortfall. Normally, inventory levels increase at the end of the year, but this year, inventory remained relatively stable compared to the previous months, which has been a critical issue for the company in missing its sales forecasts for two consecutive quarters.

Conclusion and Future Outlook

Despite the short-term performance fluctuations, Eli Lilly remains optimistic about the future. The company expects its revenue for 2025 to reach between $58 billion and $61 billion, representing a year-over-year growth of about 29%. To address the current market fluctuations, Eli Lilly plans to ramp up production and expects the sellable dose of GLP-1 drugs to increase by at least 60% in the first half of 2025 compared to the first half of 2024. In addition, the company plans to launch new drugs, which will further contribute to growth.

Specifically, in the Chinese market, Eli Lilly’s weight loss drug, MuFengDa (Zepbound), has already been launched, covering both diabetes and weight loss indications, which is expected to become a new growth driver for the company.

Investors need to approach short-term fluctuations with caution. Although Eli Lilly’s stock has experienced a sharp drop, its long-term growth prospects remain promising. Fluctuations in the weight loss drug market, inventory management issues, and forecasting errors may lead to short-term stock price volatility, but with the expansion of production capacity and the launch of new drugs, Eli Lilly is expected to maintain growth. Investors should take a measured approach to the current short-term volatility and focus on the company’s future growth potential.