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Sales of Eli Lilly's (LLY) blockbuster diabetes and weight loss drugs, Mounjaro and Zepbound, are very strong, but they're not quite as robust as the company and analysts had anticipated in Q4. Therefore, the company issued downside Q4 revenue guidance of $13.5 bln, igniting a sharp selloff in the stock that has now taken shares lower by about 24% from the record highs set last August.

The pharmaceutical giant also guided for FY25 revenue of $58-$61 bln, equating to estimated yr/yr growth of approximately 32% and beating expectations at the midpoint of the range. However, the lofty expectations and rich valuation -- LLY is currently trading with a 1-year Forward P/E of 35x -- is leaving little room for error and the company's second straight quarterly revenue miss is enough of a blemish to instigate a pullback.

• Rewinding to last quarter, the story was much the same as today. While demand for Mounjaro and Zepbound was very strong, as reflected by Mounjaro sales surging by 121% yr/yr to $3.11 bln and Zepbound generating sales of nearly $1.3 bln, inventory decreases in the wholesale channel prevented growth from being even stronger. LLY estimated that these decreases negatively impacted Q3 sales of Mounjaro and Zepbound by a mid-single-digit rate.
• Similarly, in this morning's press release, LLY cited lower-than-expected channel inventory as a factor in its softer-than-expected Q4 results. Furthermore, the anticipated bump in December sales that typically results from customers bolstering prescriptions before deductibles reset in January did not play out as expected. 
• Looking beyond Mounjaro and Zepbound, most of LLY's portfolio is also performing quite well. In fact, its non-incretin products generated strong growth of 20% in Q4, marking an acceleration from last quarter's growth of 17%. Verzenio, a treatment for metastatic breast cancer, has been a standout with sales up by 37% in Q3, while autoimmune disease drug Taltz has also seen solid growth. The clear laggard has been Trulicity, a diabetes/weight loss drug that has been cannibalized by the surge in sales for Mounjaro and Zepbound. In Q3, Trulicity sales tumbled by 22% to $1.30 bln.

The main takeaway is that business is still quite strong for LLY and that FY25 is setting up to be another highly successful year, led by high double-digit growth for Mounjaro and Zepbound. Expectations are sky-high for the company, so any disappointment is going to be amplified, but many companies -- especially mature pharmaceutical companies -- would gladly accept 30%+ top-line growth.