Eli Lilly Stock Slips on Outlook. Is It Time to Buy the Dip?

Shares of Eli Lilly (NYSE: LLY) sank after the drugmaker lowered its full-year profit outlook, and a potential headwind to pricing and access to its drug Zepbound emerged. However, the guidance reduction stems from an up-front payment it made to acquire Scorpion Therapeutics' STX-478 program to treat breast cancer. This is a one-time financial adjustment related to accounting that has no bearing on its business operations.

The company's GLP-1 drugs continue to drive strong revenue growth. Mounjaro revenue soared 113% to $3.8 billion, while Zepbound revenue surged from $517 million a year ago to $2.3 billion.

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Both drugs have the same active ingredient, tirzepatide, but are approved for different indications. Mounjaro is approved by the Food and Drug Administration (FDA) to help adults with type 2 diabetes lower their blood glucose levels, while Zepbound is approved for weight loss in obese adults or overweight adults with at least one weight-related condition, such as high cholesterol or high blood pressure. The reality, though, is that both drugs are often prescribed off-label for any type of weight loss.

During the quarter, Zepbound became the market leader for branded anti-obesity medications in the U.S., accounting for 60% of total prescriptions and 74% of new prescriptions in the first quarter. Lilly also introduced higher-dose vials for the self-pay market, and said these higher doses accounted for approximately 10% of total prescriptions and 25% of new prescriptions.

Meanwhile, the company continues to expand Mounjaro internationally. The drug is now available in 40 countries, and recently launched in India and Mexico. Lilly will continue to bring Mounjaro to other countries throughout the year.

A new oral drug is a potential game changer

While Lilly's GLP-1 drugs continue to be a huge growth driver for the company, its new orforglipron franchise has the potential to be even bigger. Unlike other GLP-1 weight loss drugs currently on the market , orforglipron can be taken orally instead of by injection. This should expand the market for GLP-1 drugs, as many people are likely reluctant to inject a needle into their abdomen or thigh.

The drug also isn't expected to have the same supply constraints as injectable GLP-1 drugs, which need specialized injection pens as well as cold storage and shipping. Orforglipron won't require either of these things, making its manufacturing and transport a lot easier.

Lilly has also been investing heavily to increase its U.S. manufacturing capacity. It has announced over $50 billion in new U.S. manufacturing investments since 2020. This includes four new facilities (three of which will manufacture active pharmaceutical ingredients) that it announced in February.

The company said the recent phase 3 trial results from its Achieve-1 study support its "hypothesis that orforglipron could deliver efficacy, safety, and tolerability similar to the best seen for available GLP-1 monotherapy injectables." While the trial was for treating patients with type 2 diabetes, it showed that patients who took the drug experienced considerable weight loss.

Lilly also said it was very pleased with the drug's safety profile. It has several more orforglipron trials underway for both type 2 diabetes and obesity. It plans to submit orforglipron for FDA approval for obesity in Q4, and for type 2 diabetes in the first half of 2026.

All was not positive on the GLP-1 drug front, though. On the day of Eli Lilly's earnings report, CVS Health announced that its pharmacy benefit manager (PBM) unit Caremark would make rival weight loss drug Wegovy -- made by Novo Nordisk -- the preferred weight loss medication on its standard formularies (lists of covered drugs), while dropping Zepbound. On Lilly's earnings call, management noted that this was for a subset of CVS plans and not the entire CVS account.

However, what this does show is that some PBMs could look to pit GLP-1 drugmakers against each other as a way to reduce prices. For its part, though, Cigna Group, which owns the PBM Express Scripts, said it had no interest in negotiating an exclusive deal with a GLP-1 manufacturer. That said, there could be some pricing pressure as a result of the actions by CVS. This makes orforglipron all the more important for Lilly's future results.

Overall, Lilly grew its Q1 revenue by 45% to $12.73 billion, while adjusted earnings per share (EPS) climbed 29% to $3.34. However, that included $1.72 of acquired "in-process research and development" (IPR&D) charges from the aforementioned acquisition of Scorpion Therapeutics' STX-478 program. The results still topped analyst expectations, as compiled by LSEG, for adjusted EPS of $3.02 on sales of $12.67 billion.

Looking ahead, the company maintained its sales forecast for revenue of between $58 billion and $61 billion. Due to the acquired IPR&D charges, however, it lowered its full-year EPS guidance to a range of $20.78 to $22.28, from an earlier outlook of $22.50 to $24.

Image source: Getty Images.

Should investors buy the dip on Eli Lilly?

The CVS news overshadowed what was a strong overall quarter from Eli Lilly and its GLP-1 drugs. I wouldn't be surprised to see some price erosion in the injectable versions.

However, I think orforglipron has the potential to become the biggest GLP-1 drug on the market. The hypothesis is quite simple: People will prefer taking a weight-loss pill rather than having to stick themselves with needles, and they'll be willing to pay more to do so as well. Throw in the benefits of less complex manufacturing, storage, and transportation, and the drug has immense potential.

Following the sell-off, Lilly trades at a forward price-to-earnings (P/E) of 37 times 2025 analyst estimates, with a price-to-earnings-to-growth (PEG) ratio of 0.4. PEGs below 1 are generally considered undervalued, so on that basis, the stock is very inexpensive.

The GLP-1 market continues to see rapid growth. And while there's currently some pricing pressure, that appears to be accounted for in Lilly's valuation. What is not priced into the stock, though, is the huge potential of orforglipron. That makes Eli Lilly a buy in my book.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health and Novo Nordisk. The Motley Fool has a disclosure policy.