After Global Crazy Expansion for Production, Eli Lilly's Rating Rarely Downgraded! Is the Weight Loss Drug Market Overvalued?

What market risks are hidden behind AI and Lilly’s expansion?

On March 17 local time, the stock price of Lilly, the world’s most valuable pharmaceutical company, plummeted by 6% at the close, bringing its market value back below $900 billion, nearly $100 billion less than its peak two weeks ago.

The sharp decline in Lilly’s stock price that day was triggered by HSBC’s downgrade of its stock rating from $1,070 to $850. As of the close on March 17, Lilly’s stock price was $930. This is a rare occurrence on Wall Street in recent years, where the target price for the company has been downgraded. Since Lilly launched its GLP-1 drug tirzepatide, brokerage firms have been betting heavily, driving the company’s stock price soaring, with its market value surpassing $1 trillion last year.

HSBC’s latest rating report suggests that the market’s long-term bullish sentiment on weight-loss drugs may be beginning to shift. HSBC analysts believe that market expectations for Lilly’s weight-loss drugs may be exceeding the actual results. This is partly due to fierce competition that could impact prices and overall profitability in the weight-loss drug industry; on the other hand, Lilly’s current valuation already reflects market optimism that may be overly optimistic.

HSBC’s downgrade of Lilly’s stock rating comes at a time when Lilly is actively expanding its manufacturing capacity worldwide. Over the past few months, Lilly executives have repeatedly indicated that the company has deployed sufficient manufacturing capacity for its next-generation weight-loss drugs. Earlier this month, Lilly announced a $3 billion investment in China to build new production lines, focusing on the production capacity of the new oral small-molecule GLP-1 receptor agonist orforglipron. This drug is expected to receive FDA approval for market launch in the second quarter of this year.

Before the drug’s approval, a filing submitted by Lilly last month showed that the company has reserved $1.5 billion worth of inventory for orforglipron, which will meet supply needs in multiple countries worldwide.

Lilly will also build large-scale factories in the United States. Last year, the company announced plans to invest at least $27 billion to build four new manufacturing bases in the U.S., three of which will focus on producing active pharmaceutical ingredients, including a $3.5 billion factory in Pennsylvania and a $6 billion facility in Alabama.

According to previous Wall Street expectations, the global weight-loss drug market could reach $150 billion by 2030, but HSBC believes this forecast may be exaggerated. Looking ahead, HSBC estimates that by 2032, the global weight-loss drug market could be between $80 billion and $120 billion. Additionally, the bank pointed out that after the launch of Lilly’s oral weight-loss drug orforglipron, sales targets may be difficult to achieve due to lower-than-expected patient adherence. It is estimated that orforglipron could generate about $1.5 billion in revenue for Lilly in 2026.

(This article is from First Financial)