A month has gone by since the last earnings report for Eli Lilly (LLY Quick QuoteLLY - Free Report) . Shares have lost about 5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lilly due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Q3 Earnings & Sales Miss Estimates

Lilly’s third-quarter results were weaker than expected as it missed estimates for earnings and sales and also lowered its financial guidance for the year.

Lilly reported third-quarter 2024 adjusted earnings per share (“EPS”) of $1.18, which missed the Zacks Consensus Estimate of $1.52 per share. In the year-ago quarter, the company had reported earnings of 10 cents per share.

Adjusted earnings included an acquired in-process research and development (IPR&D) charge of $2.8 billion or $3.08 per share, primarily related to the acquisition of Morphic, which was closed in August.

Revenues of $11.44 billion rose 20% year over year. Total revenues, however, missed the Zacks Consensus Estimate of $12.03 billion.

In the reported quarter, net realized prices rose 6%, while volumes rose 15%. 

While U.S. revenues rose 46% to $7.81 billion, ex-U.S. revenues decreased 12% to $3.63 billion.

Higher volumes of drugs like Mounjaro, Zepbound, Verzenio and Taltz were partially offset by lower volumes of Trulicity and a difficult comparison with the year-ago quarter, which included $1.42 billion in revenues from the sale of Zyprexa rights. Excluding revenues from the sale of rights for Zyprexa in the year-ago quarter, third-quarter 2024 revenues increased 42% while volumes rose 36%. Worldwide sales of its non-incretin products rose 17% in the quarter, excluding Zyprexa sales. Lilly’s non-incretin products include its oncology, immunology and neuroscience medicines.

Key growth products (select products launched prior to 2022 like Cyramza, Emgality, Jardiance, Olumiant, Retevmo, Taltz, Trulicity, Tyvyt and Verzenio) grew 5% to $5.19 billion. Eli Lilly’s new products (products launched since 2022 like Ebglyss, Jaypirca, Mounjaro, Kisunla, Omvoh and Zepbound) contributed $4.51 billion to revenues, led by Mounjaro and Zepbound.

Mounjaro and Zepbound Sales Miss

Sales of Mounjaro and Zepbound disappointed in the third quarter due to inventory issues, per Lilly.

Lilly said that due to higher wholesaler inventory levels at the end of the second quarter, Mounjaro and Zepbound sales in the third quarter were negatively impacted by inventory decreases in the wholesaler channel. On the conference call, the company said that while demand for Mounjaro and Zepbound is strong and growing, sequential growth of these drugs in the quarters of 2024 has been impacted by supply and channel dynamics. In the second quarter increased supply led to higher shipments which allowed the company to fulfill all backorders for its wholesales. However, channel inventory decreased at wholesalers in the third quarter which hurt sales of the drugs. 

Mounjaro recorded sales of $3.11 billion during the quarter compared with $3.09 billion in the previous quarter. The reported sales figure missed the Zacks Consensus Estimate as well as our model estimate of $3.70 billion. 

Mounjaro sales benefited from increased demand, improved supply and favorable changes to estimates for rebates and discounts in the United States, partially offset by inventory decreases in the wholesaler channel. International sales benefited from the launch of Mounjaro KwikPen in various markets, which boosted volumes.

Zepbound, which was launched in November 2023, recorded sales of $1.26 billion in the quarter compared with $1.24 billion in the previous quarter. Zepbound revenues missed our model estimate of $1.50 billion. Zepbound sales were hurt by inventory decreases in the wholesaler channel. The company said that the launch of single-dose Zepbound vials (2.5 and 5 mg) improved the supply of Zepbound in the quarter.

The company said that it is balancing demand and supply of Mounjaro and Zepbound and the launch of the drugs in international markets. Lilly expects to increase demand activities for Mounjaro and Zepbound in the fourth quarter, which should benefit sales in 2025. The launch of Mounjaro in new international markets is expected to contribute to the drug’s sales growth in the fourth quarter.

Key Drugs’ Sales Numbers

Among the growth products, Trulicity generated revenues worth $1.3 billion, down 22% year over year due to lower volumes. Sales declined 26% in the United States, primarily due to competitive dynamics, partially offset by favorable changes to estimates for rebates and discounts. In international markets, sales declined 12% due to decreased volumes, primarily due to competitive dynamics. Sales of Trulicity beat the Zacks Consensus Estimate of $1.13 billion and our model estimate of $1.1 billion

Jardiance sales declined 2% to $686.4 million as increased demand was offset by lower realized prices. Jardiance missed the Zacks Consensus Estimate of $822.0 million as well as our model estimate of $823.3 million. 

Taltz brought in sales of $879.6 million, up 18% year over year, driven by higher pricing and increased demand in the United States, partially offset by unfavorable wholesaler buying patterns. Taltz beat the Zacks Consensus Estimate as well as our model estimate of $837.0 million.

Verzenio generated sales of $1.37 billion in the reported quarter, up 32% year over year, on increased demand driven by the launch of the early breast cancer indication. However, the increase was partially offset by unfavorable wholesaler buying patterns. Verzenio sales missed the Zacks Consensus Estimate of $1.38 billion as well as our model estimate of $1.43 billion.

Emgality generated revenues of $202.9 million in the quarter, up 20% year over year. Olumiant (baricitinib) generated sales of $250.8 million, up 8% on a year-over-year basis. Retevmo generated sales of $114 million, up 80% year over year.

Cyramza’s revenues of $236 million were up 5% year over year. 

Among the established products, Alimta sales declined 10% to $48.0 million. Humalog sales rose 35% to $534.6 million, driven by higher realized prices due to a favorable segment mix in the United States and higher realized prices in China, partially offset by decreased volume in international markets.

New drug Jaypirca recorded $81.1 million in sales compared with $92.4 million in the previous quarter. In the second quarter of 2024, Lilly had recognized some collaboration milestones in Japan. Excluding this one-time milestone, Jaypirca revenues rose sequentially led by the continued uptake for both the MCL and CLL patient population.

New drugs Omvoh and Ebglyss recorded sales of $40.5 million and $14.9 million, respectively, in the quarter, compared with $25.6 million and $4.3 million, respectively, in the previous quarter. Kisunla generated sales of $1.4 million in the third-quarter.

Gross Margin & Operating Income

Adjusted gross margin was 82.2%, up 0.5 percentage points year over year, driven by higher realized prices and favorable product mix, partially offset by the sale of rights for the olanzapine portfolio in Q323 and higher production costs.

Marketing, selling and administrative expenses rose 16% to $2.10 billion to support the launch of new products and indications. R&D expense increased 13% to $2.73 billion in the quarter due to higher costs for early and late-stage pipeline portfolio.

The adjusted effective tax rate was 37.6% compared with 84.6% in the year-ago quarter.

2024 Guidance

Lilly lowered the upper end of its previous revenue guidance while significantly trimming its earnings expectations. 

The total revenue guidance range was narrowed from $45.4 billion to $46.6 billion to $45.4 billion to $46.0 billion. The mid-point of this guidance range implies year-over-year revenue growth of 50% in the fourth quarter compared with 42% in the third quarter.

The earnings per share guidance was lowered from a range of $16.10 to $16.60 per share to $13.02 to $13.52 due to the acquired IPR&D charges incurred in the third quarter. The guidance includes acquired IPR&D charges of $3.09 billion, or $3.33 per share.

From the fourth quarter of 2023, Lilly began providing guidance for a new ratio (Gross Margin - OPEX) / Revenue), which represents margin after subtracting R&D costs and marketing and administrative costs from gross margin and dividing that figure by revenue. This ratio is expected to be in the range of 37% to 39% in 2024.

Adjusted other income is expected to be in the range of $300 to $400 million of expenses. The adjusted tax rate is expected to be approximately 17% (previously approximately 15%).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Lilly has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.