Despite beating on its earnings Thursday, pharma giant Eli Lilly (LLY) suffered a nearly 12% loss in its stock, losing more than $90 billion in market cap in a single day.
The move, some analysts say, was an overreaction to the news that GLP-1 competitor Novo Nordisk (NVO) locked up a preferred listing deal with CVS (CVS) on its formulary for obesity drug Wegovy to the exclusion of Eli Lilly's drug Zepbound.
"We think the market reaction was overdone and are thus reiterating our OP [Outperform] rating on LLY," Leerink Partners analyst David Risinger wrote in a note to clients Friday.
Risinger also lowered Eli Lilly's price target from $989 to $944 on the formulary news, calling it a negative in a note Thursday.
The deal with CVS is the latest this week as Novo Nordisk pushes for more access points for Wegovy, which has been overtaken in weekly prescription fillings by Eli Lilly's Zepbound, including deals with telehealth platforms like Hims & Hers (HIMS). It's a key reason why Novo Nordisk's stock is down more than 25% in the past two months.
"LLY is taking ~75% share on new branded obesity scripts," Jefferies analyst Akash Tewari wrote in a note to clients Thursday. He questioned whether Novo Nordisk's move was the right one.
This also sparked concern that Novo Nordisk's moves could hamper Eli Lilly's momentum — and launch a price war — which pressured Eli Lilly's stock Thursday. Eli Lilly's stock looked to be slightly reversing its losses in trading Friday, up more than 4% at market open.
"The move today reminds of what we say frequently: expect volatility, take advantage of moment of weakness, as long as there is not a new, fundamental crack in the story — no such cracks surfaced today, in our opinion," BofA Securities analyst Tim Anderson wrote in a note to clients Thursday.
Erosion or price war?
The overarching concern with the CVS/Novo Nordisk deal is whether this starts a race to the bottom on pricing between the two GLP-1 market leaders.
The stock action Thursday assumed the CVS move would drive down price, and therefore profits, for both companies in the GLP-1 market, driven by a "desperate" Novo Nordisk, BofA's Anderson said.
Eli Lilly CEO David Ricks signaled he was not interested in such a race and instead is focusing on near-term wins with next-generation GLP-1s and the highly anticipated orforglipron, an obesity pill that could hit the markets mid-next year.
"We're not interested in exclusive deals. We think innovation and choice is very important. And we're well into the product replacement cycle, and there's more coming," Ricks told Yahoo Finance.
That sentiment was reflected in some analyst notes late Thursday.
Jefferies' Tewari wrote in a note that Lilly still "has one of the most sustainable growth stories in the next 5-10 years."
He expressed doubt that the impacted pool of patients would be significant and shrugged off the idea that this was the starting gun of a price war.
"We're skeptical that NVO is making irrational pricing decisions & that a single formulary will lead to a race to the bottom on pricing," he wrote.
JPMorgan's Chris Schott similarly wrote, "We do not see the CVS announcement as portending an acceleration in price declines across the space," and he does not see this as "leading to a price war."
BofA's Anderson had a slightly different take.
"It's not to say that there's not going to be erosion in price, I mean there is, each and every year. This is not a sudden step-change. I think it's being taken out of proportion," he said.
The Eli Lilly company logo is seen displayed on a smartphone screen. (Piotr Swat/SOPA Images/LightRocket via Getty Images) ·SOPA Images via Getty Images
Employer response
But time will tell if the move is a desperate one on the part of either CVS or Novo Nordisk, with broader impacts, or one that doesn't move the needle at all.
"I do think Novo, they are trying to prove to their shareholders that they're going to see inflection of their franchise and return to growth later in the year. That's why they signed that Hims deal, that's why they can talk about the CVS deal. I think this is free advertising for CVS and Novo," BofA's Anderson said.
"I think Novo is trying to convey ... there's always negotiations with payers, but they're not out there undermining a market. And that's how Lilly's stock is reacting," he said, adding CVS may have been overstating the impact of the formulary decision on the call.
Most analysts said the impact on Eli Lilly should be limited and that a key indicator would be employer-sponsored insurance plans and how they react to the formulary option.
"It remains to be seen how attractive this change will be to employers given differences in product profiles while patients could also look to go through exemption processes to keep their prescriptions," Schott wrote.
He added, "LLY noted that the change primarily impacts smaller employers, who likely have lower employer opt-in rates on average (while larger employers largely utilize more customized formularies)."
StockStory aims to help individual investors beat the market.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee as AnjKhem on social media platforms X, LinkedIn, and Bluesky @AnjKhem.
