Shares of Eli Lilly fell 6% on Tuesday and are on track for their worst day since February after a downgrade by HSBC. The gist of HSBC’s claim: Wall Street is overly optimistic about the size of the GLP-1 obesity market. The company’s analysts expect it to be between $80 billion and $120 billion in 2032, while the current consensus is over $150 billion. They also argued that price competition in the GLP-1 market is “likely to be significant,” although they note that Lilly’s 2026 guidance suggests the company will see sufficient volume growth to overcome pricing headwinds related to its agreement with the Trump administration. In that agreement, announced in November, Lilly agreed to lower prices for some of its obesity drugs in exchange for access to Medicare. In addition, analysts said they were concerned that Eli Lilly’s reliance on people buying the drugs out of pocket rather than through health insurance could become a problem if the U.S. economy hits a tough patch and the middle class has less money to spend on GLP-1 drugs. They even mentioned the possibility of AI-driven disruption to office jobs. HSBC acknowledged that Lilly’s strength in the cash payments market currently represents an advantage over struggling rival Novo, but essentially said it might not always be welcome exposure. Another concern for HSBC is that Lilly’s threatened obesity pill could prove a long-term disappointment if patients don’t adhere to the medication. “We believe that market perceptions of compliance and persistence with oral administration are not consistent with discontinuation rates in clinical trials,” they wrote. “All in all, we don’t like the risk-reward ratio of Lilly shares,” they added. LLY 1Y Mountain Eli Lilly’s stock performance in the last 12 months. It is currently difficult to refute some of HSBC’s long-term concerns, as the evidence on obesity pill compliance and the cyclicality of the cash market is based on future assumptions. At the same time, concerns about price wars are well-founded and we have previously recognized them as a risk to monitor. But from our perspective, HSBC is about as bearish on the GLP-1 market as we’ve seen recently. So it is definitely a call that does not meet the consensus. We continue to believe that Lilly’s pill will be a great success as it results in significant weight loss without restrictions on food and water intake, and a needle-free GLP-1 option will appeal to a broader group of people. The FDA is expected to approve Lilly’s obesity pill, known as orforglipron, next month. Novo became the first to market a GLP-1 obesity pill in January under the brand name Wegovy, a rare bright spot for the Danish drugmaker. We also believe that insurance coverage for GLP-1 will continue to increase over time as it becomes increasingly clear that they improve patient health in other areas, such as preventing cardiovascular disease. By the way, studies by Lilly and Novo have repeatedly shown that these drugs provide benefits beyond shedding pounds. The more insurance coverage there is, the less dependence on the cash payment market should be. (Jim Cramer’s Charitable Trust is long-LLY. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
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