• Eli Lilly’s blockbuster weight-loss drug Zepbound and diabetes treatment Mounjaro reported weaker-than-expected sales in the third quarter, although both drugs have largely recovered following widespread shortages in the United States.
• The drugmaker blamed the shortages on drug wholesalers, who cut off stocks of Zepbound and Mounjaro.
• Eli Lilly executives emphasized that demand for drugs remains strong and the company has adequate supply.

Eli LillyBlockbuster weight loss drug Zepbound and diabetes treatment Mounjaro released weaker than expected sales for the third quarter, although supplies of both drugs decreased largely escaped widespread famines in the USA

According to the company, this is not due to a supply or demand issue.

Eli Lilly instead attributed the disappointing sales to pharmaceutical wholesalers who cut stocks of Zepbound and Mounjaro. Wholesalers buy drugs from manufacturers and sell them to hospitals, clinics, pharmacies and other healthcare providers.

According to the pharmaceutical giant, the supply increases allowed Eli Lilly to fulfill the remaining orders from wholesalers in the second quarter, which led to increased inventories of Zepbound and Mounjaro during the period.

But Eli Lilly said those wholesalers used some of the existing inventory in the third quarter instead of buying more from the company, reducing revenue from both treatments.

Mounjaro’s sales of $3.11 billion in the third quarter were well below the $3.7 billion analysts expected, according to estimates compiled by StreetAccount. Zepbound’s sales were $1.26 billion in the quarter, missing the $1.76 billion analysts expected.

“The primary culprit was inventory loss at Mounjaro and Zepbound… not weak demand,” Citi analyst Geoff Meacham said in a research note Wednesday. he wrote.

Mizuho healthcare equity strategist Jared Holz wrote in an email that “destocking” (or selling existing inventory rather than stocking more) was a surprise, especially since demand for treatments is high.

But he said Eli Lilly has invested $10 billion to $15 billion this year alone to expand its manufacturing capacity for injectable drugs, which “will help reverse some of the trends that have been reported during this period.”

Still, some analysts question whether the inventory issue could explain Zepbound and Mounjaro’s sales in the third quarter. That factor likely explains “only a portion” of the drug revenue losses, or about 20%, Barclays analyst Carter Gould wrote in a note Wednesday.

Demand for weight loss and diabetes injections has outpaced supply in the past two years.

But Eli Lilly’s supply woes began to ease earlier this year when the Food and Drug Administration removed tirzepatide, the active ingredient in Mounjaro and Zepbound, from its shortage list.

Earlier this month, a trade group representing pharmacies that produce customized, often cheaper alternatives to shortage-plagued brand-name drugs sued the FDA. The group said tirzepatide was still in short supply and should therefore remain on the shortage list. This led the institution to reconsider its decision.

In its earnings call Wednesday, Eli Lilly executives insisted that demand for drugs remains strong.

“Is there a demand issue? No,” Eli Lilly CEO Dave Ricks said, pointing instead to “too much bloat in channel stocking.”

“I think what we really can’t control and we haven’t tried, but in reality Lilly’s downstream customers, wholesalers and retailers, make their own decisions about which of the 12 different dosage forms they want to stock at what level,” Ricks said.

He noted that wholesalers are dealing with some constraints, including financial pressures. They also have to deal with “cold chain” capacity constraints, or maintaining a temperature-controlled supply chain that ensures the quality of drugs from production to distribution.

Ricks said Eli Lilly has not yet begun what the company calls “demand-driving activities,” or advertising and promotion, for Zepbound. He said the drugmaker will begin these studies in November.

This will include providing drug samples to healthcare providers

Eli Lilly is also investing heavily in its direct-to-consumer website, which offers telehealth prescriptions and direct home delivery of select medications to expand patient reach, executives said during the call.

Ricks dismissed the idea that disappointing sales in the quarter were due to competition from composite versions of Mounjaro and Zepbound.

“We don’t really see a financial impact of compounding on Lilly,” Ricks said.