Weight Loss Letdown: Lilly’s Drop Drags Down ETFs
Eli Lilly’s blockbuster earnings weren’t enough to stop a 15% plunge in its stock.
Shares of Eli Lilly plunged on Thursday, dragging down health care and pharmaceutical ETFs, despite the company reporting strong earnings results.
The drugmaker, which remains the world’s most valuable health care company with a market cap of $607 billion even after Thursday’s 15% billion drop, reported second-quarter revenue of $15.56 billion, up 38% year-over-year and nearly 6% above analyst expectations. Adjusted earnings per share of $6.31 beat estimates by 13%, and the company raised its full-year revenue and EPS guidance.
“Lilly delivered another quarter of strong performance, achieving 38% year-over-year revenue growth driven by robust sales of Zepbound and Mounjaro and sustained momentum across our key medicines,” said CEO David Ricks in a press release.
Red Hot Market
Lilly has been a dominant player in the red-hot GLP-1 drug market, with Mounjaro (for type 2 diabetes) and Zepbound (for weight loss) gaining share against Novo Nordisk’s rival products, Ozempic and Wegovy. In a recent head-to-head trial published in the New England Journal of Medicine, Mounjaro led to 20% weight loss over 72 weeks versus 14% for Wegovy.
However, investors were rattled by fresh data from a trial of Lilly’s new daily oral weight loss drug, orforglipron. While still effective, the pill resulted in 12% average weight loss, less than expected and notably below the company’s injectable therapies.
If Lilly’s oral weight loss drug had met or exceeded expectations, it could have reshaped the market, offering a more convenient alternative to injections. While analysts note that convenience could still drive adoption, Thursday’s price action suggests investors are recalibrating their optimism.
Health Care Lags
Shares of Lilly tumbled as much as 15% to their lowest level in over a year. The stock is now down nearly one-third from its all-time high.
The news also boosted rival Novo Nordisk, whose stock jumped more than 7% on Thursday. Novo shares have been under pressure this year due to fierce competition from Lilly and emerging compound medicines.
For ETFs, the sharp move in Lilly had ripple effects. The Health Care Select Sector SPDR Fund (XLV) fell more than 1% on the day, while the iShares U.S. Pharmaceuticals ETF (IHE) lost over 2%. Lilly is XLV’s largest holding, with a 12.4% weight, and the second-largest in IHE, at 21%, behind only Johnson & Johnson at 25%.
With its dominant position in health care ETFs, Lilly’s decline is adding to what has been a rough year for the sector. XLV is down about 6% year to date, compared to a 9% gain for the Vanguard S&P 500 ETF (VOO). Weakness in other health care giants like UnitedHealth Group has also contributed to the sector’s underperformance.
