Eli Lilly downplays CVS move to drop Zepbound coverage, shares plunge

By Bhanvi Satija and Patrick Wingrove

May 1 (Reuters) - Eli Lilly LLY.N on Thursday downplayed CVS Health's CVS.N decision to drop the company's obesity drug Zepbound from some lists of medicines it covers for reimbursement, but shares of the drugmaker still fell roughly 10% on investor worries that the move could blunt its sales momentum.

Lilly's leading position in weight loss and diabetes treatments has boosted its market value to more than $800 billion, making it the world's most valuable healthcare company.

Zepbound's prescription growth has surged ahead of Novo Nordisk's NOVOb.CO rival GLP-1 weight-loss drug Wegovy in recent months after struggles with supply issues in 2024.

CVS's pharmacy benefit management unit, the largest in the U.S., said it would drop Zepbound coverage from July 1, but keep reimbursing for Wegovy after negotiating a more favorable price from the Danish drugmaker.

Lilly CEO Dave Ricks said most customers affected by CVS's move would be smaller employers that do not tend to cover obesity drugs. Still, "it seems like the wrong idea to reduce choice," he said, adding that the company will watch the market's reaction.

Novo's Wegovy was in short supply until late February when U.S. regulators said the shortage had ended.

Pharmacy benefit managers negotiate volume discounts and fees with drug manufacturers on behalf of employers and health plans, and create lists of medications that are covered by insurance. Prescriptions can be drastically reduced if these middlemen decide not to cover a drug.

Daniel Barasa, a portfolio manager at Gabelli Funds, said the stock reaction to the CVS news is overblown, given larger self-insured employers typically design their own customized lists of drugs for reimbursement.

CVS CEO David Joyner said in an interview that he was unsure if the negotiated price for Wegovy will dramatically increase the number of health plans providing weight-loss coverage. "But certainly as we're bringing the cost down, we're going to end up bringing more clients into a covered benefit."

Two Lilly investors said the CVS coverage decision will heat up the pricing competition between Novo and Lilly. But they were not immediately worried about a big hit to sales as patients and doctors seem to prefer Zepbound, they said.

The next two largest U.S. PBMs - UnitedHealth Group's UNH.N OptumRx and Cigna's CI.N Express Scripts - did not respond to queries about any similar moves.

Lilly competes with Novo in a market for obesity drugs estimated to reach more than $150 billion a year by the next decade. Annual sales of both Wegovy and Zepbound are expected to cross $20 billion by 2029, according to LSEG data.

Lilly also said current tariffs imposed by the Trump administration would not materially affect its forecast for 2025. It said an expansion of import duties in other geographies or retaliatory tariffs would have a negative impact.

The U.S. drugmaker on Thursday also posted higher-than-expected quarterly results.

It said lower prices for Zepbound trimmed revenue in the quarter, but that demand remained strong. Sales of the drug came in at $2.31 billion for the first quarter, slightly below analysts' expectations of $2.33 billion.

Lilly in February cut the price for vials of Zepbound by $50 or more and expanded the range of doses it sold online to address competition from compounding pharmacies and Novo. It now offers the two lowest doses of Zepbound for $349 and $499 for a month's supply. CVS is also making those vials available in pharmacies.

OVERTAKING WEGOVY

Weekly U.S. prescriptions of Wegovy have plateaued since mid-February, according to IQVIA data provided by analysts. Zepbound recorded nearly 339,000 prescriptions for the week ending April 18, overtaking Novo's obesity drug by more than 127,000.

Lilly said it had captured about 53.3% of the U.S. market share. IQVIA data suggested Lilly's current share was closer to 62%.

Leerink analyst David Risinger said CVS's coverage decision will "hurt Zepbound's growth momentum," although Lilly will maintain a leading market share as Zepbound has been shown to be a more effective drug than Wegovy.

"I would assume that Lilly will fortify its relationships with other major PBMs," he said.

Sales of diabetes drug Mounjaro were $3.84 billion, exceeding analysts' estimates of $3.80 billion. Mounjaro is also the brand name used for weight loss outside the U.S.

Lilly cut its full-year adjusted profit forecast to between $20.78 and $22.28 per share, from its previous view of $22.50 to $24.00 per share, citing deal charges.

On an adjusted basis, Lilly earned $3.34 per share for the quarter, topping analysts' estimates by 32 cents.

Total revenue for the period was $12.73 billion, above Wall Street expectations of $12.67 billion.