Did the market "misjudge" Eli Lilly?

Yesterday, Eli Lilly announced its Q2 financial report, leading to a 15% plunge in its stock price. However, Bank of America believes this is a panic sell-off by the market, and Eli Lilly's fundamentals remain rock solid.

According to news from the Wind Trading Desk, Bank of America stated in its report released on the 7th that Eli Lilly holds an "undisputed position" in the highly promising weight loss drug market, with growth prospects far exceeding its peers, and its current valuation is more attractive after the stock price drop.

During the earnings call, analysts focused almost entirely on the competitive outlook for the oral weight loss drug Orforglipron, potential pricing pressures, and threats from generics, among other core issues. The market's panic sentiment seems to overshadow the company's current excellent performance.

Despite the pessimistic market sentiment, Bank of America analysts reiterated their "buy" rating on Eli Lilly and set a target price of $1,000. Eli Lilly's revenue growth guidance of up to 35% leads its peers, yet its valuation has not fully reflected this advantage, indicating a clear "mismatch."

Strong Performance, Encouraging Results from Oral Weight Loss Drug Trials

Eli Lilly's total revenue for the second quarter reached $15.558 billion, a year-on-year increase of 38%, exceeding Bank of America's expectations by 4% and market expectations by 6%. Among them, the performance of weight loss drug products is particularly outstanding: Mounjaro achieved $5.199 billion in revenue, exceeding expectations by 16%; Zepbound recorded $3.381 billion in revenue, exceeding expectations by 8%.

In terms of earnings per share, the adjusted earnings per share were $6.31, exceeding Bank of America's expectations by 8% and market expectations by 13%. The company also raised its revenue and earnings per share guidance for the fiscal year 2025. The gross profit margin reached 85.0%, an increase of 3 percentage points compared to the same period last year, mainly benefiting from improved product mix and production efficiency.

The results of the ATTAIN-1 trial showed that orforglipron has good safety and tolerability, with no liver-related issues reported. This oral medication can achieve a weight loss effect of 27 pounds, which is significant for oral formulations. The company's management expressed that they are "very satisfied" with the overall performance of the trial results.

In the next five months, the company will announce results from four additional Phase III clinical trials, which will provide investors with more information about the drug's prospects. Complete trial data will be presented at the European Association for the Study of Diabetes annual meeting in September.

Market Panic Focus: The Future of Weight Loss Drugs

Given such impressive financial results, why did the market react so negatively? The minutes from the research report's conference call reveal the answer: The market's attention is almost entirely focused on the future uncertainties of the weight loss drug business, overlooking the current excellent performance. Bank of America stated that the Q&A session of the meeting was almost entirely focused on weight loss drugs, with investors showing high anxiety over the following issues:

• Prospects of the oral weight loss drug Orforglipron: Although Eli Lilly executives expressed satisfaction with the "overall image" of the pill and found its ability to reduce weight by 27 pounds "remarkable," the market clearly has doubts about its positioning in a fiercely competitive landscape.
• Pricing and competitive pressure: Pricing trends are the "top debate point." Additionally, analysts raised concerns about the potential threat of Novo Nordisk's semaglutide generics in the Canadian market, suggesting they could replace the current compounders in early 2026, impacting cash payment channels. Eli Lilly did not respond directly to this, only emphasizing that regulatory agencies should strengthen enforcement against non-compliant compounders.
• Other key issues: The meeting also covered details such as the evolution of employer insurance coverage and drug discontinuation rates, each reflecting market concerns about its future growth "moat."

Valuation and Growth Mismatch: Analysts' View of the "Buying Opportunity"

Despite the market's doubts, Bank of America analysts clearly stated that Eli Lilly's 15% stock price drop has created a "special opportunity." The research report reaffirmed a "buy" rating for Eli Lilly, with a target price of up to $1,000.

The core logic supporting this optimistic assessment is that there is a significant "mismatch" between Eli Lilly's growth potential and its valuation.

• Huge growth potential: The report noted that Eli Lilly's revenue growth guidance for 2025 is about 35%, while the average growth rate for peers (U.S./European pharmaceutical companies) is only 4%. Even the second-fastest growing company in the industry has a growth rate of only 9%. Eli Lilly's growth rate is nearly four times that of the latter.
• Relatively reasonable valuation: In terms of valuation, Eli Lilly's price-to-earnings (P/E) ratio based on estimated earnings for 2026 is only twice that of the second-fastest growing peer. Analysts believe that considering its fourfold growth rate, this valuation level indicates "there is value here."