How Eli Lilly plans to fix the supply snag for its blockbuster diabetes drug

Eli Lilly has become a victim of its own success — again. A dose of the popular diabetes treatment Mounjaro will have limited availability through February, highlighting a supply challenge that could put Wall Street’s loftiest sales goals for the drug and similar therapies in jeopardy. In a statement to CNBC, Eli Lilly confirmed the 12.5 mg dose of Mounjaro is expected to face intermittent shortages through February due to elevated demand. The other five doses of the drug — ranging from 2.5 mg up to 15 mg — are listed as fully available Thursday on an FDA website tracking drug availability . Mounjaro, which launched to treat type-2 diabetes the U.S. in 2022, has faced tight supply at various doses before, including throughout much of Eli Lilly’s third quarter last year — something the company called out as negatively impacting their results in that period. Investors are keeping a close eye on the availability of Mounjaro and Eli Lilly’s recently approved weight-loss drug Zepbound this year, given the expected growth of those products has been the primary fuel behind the company’s impressive stock performance. They’re also at the heart of our investment thesis in Eli Lilly, a longtime Club holding. Shares of Eli Lilly have soared nearly 80% over the past 12 months, including a more-than-5% gain in January alone. Wall Street sees sales of Mounjaro and Zepbound — which share an active ingredient called tirzepatide — totaling about $12.4 billion in 2024, which would represent a roughly 160% increase from projected 2023 revenue, according to analyst estimates compiled by FactSet. LLY 1Y mountain Eli Lilly’s stock performance over the past 12 months. The two drugs belong to a fast-growing category known as GLP-1s. GLP-1s have been around for almost two decades to treat diabetes, but their popularity soared in recent years as the broader public learned of their ability to help patients lose weight. The drugs mimic a gut hormone to improve blood-sugar control and effectively suppress appetite, leading to weight loss. The demand for the drugs has generally outstripped supply during this period of skyrocketing popularity for both Eli Lilly and its primary rival, Danish pharmaceutical giant Novo Nordisk , whose GLP-1s include Ozempic for diabetes and Wegovy for weight loss. Eli Lilly has wisely pursued multiple paths to alleviate supply constraints for Mounjaro and its other products in the same class, including recently approved weight-loss therapy Zepbound. For starters, the Indianapolis-based drugmaker is investing billions to build production facilities, including a major project in North Carolina that started shipping drugs last year. In addition, Eli Lilly is working on different ways to administer the injectable drugs that tap into existing manufacturing resources to help add supply. Eli Lilly’s likely introduction of a weight-loss pill in the coming years also is expected to boost its GLP-1 supply. Despite these efforts, the supply picture is likely to be tight for a while. At the influential JPMorgan Healthcare Conference earlier this month, Eli Lilly CEO Dave Ricks was asked when “capacity won’t be the rate limiter” for GLP-1s. “Not anytime soon,” Ricks responded. Manufacturing plants The primary reason: building the facilities necessary to make injectable GLP-1s is expensive and challenging. “These are complicated sites, really technically demanding work, very capital intensive, populated with machines that are highly specialized, and often made in not-so-big companies,” Ricks said. “And then the expertise to bring them online and get them FDA approved is non-trivial,” he said, referring to the regulatory inspections of manufacturing sites. Eli Lilly announced the aforementioned North Carolina project — known as the Research Park Triangle facility — in January 2020, built it during the pandemic and now commercial production is really just starting to ramp, Ricks said. “That’s about as fast as you can go,” he said. The supply from the Research Park Triangle plant helped Eli Lilly inch toward its goal of doubling GLP-1 manufacturing capacity by the end of 2023 compared with 2022 levels. In November, Eli Lilly indicated it was on track to meet the goal, which also was made possible by upgrades to existing facilities. A focus of Eli Lilly’s fourth-quarter earnings call Feb. 6 is likely to be the company’s expectations for the pace of new supply coming online in 2024, analysts at Barclays said in a note to clients this week. Due to the influence these drugs have on Lilly’s growth, investors may put more weight on the revenue performance of these two drugs versus the earnings of the entire company. Another new manufacturing plant in Concord, North Carolina — a few hours away from the RTP site — is expected to begin commercial production this year. Eli Lilly broke ground on that project in June 2022 . Meanwhile, Eli Lilly announced in November plans to build a $2.5 billion facility in Germany to make injectable drugs. It is expected to become operational in 2027, the company said at the time. New approaches Launching different methods for people to take GLP-1s is the other piece of Eli Lilly’s supply strategy, and progress is well underway. These efforts primarily focus on countries outside the U.S. The once-weekly Mounjaro and Zepbound injections in the U.S. currently use what Lilly calls an autoinjector presentation. But, as explained, there’s only so much capacity to make those autoinjectors. Eli Lilly recently launched Mounjaro in Australia and Canada using a different injection method it calls single-dose vials, with plans to expand into additional markets. However, the single-use vial approach has its own limitations and is intended to be a bridge to a delivery method called KwikPen. Eli Lilly has used KwikPen technology for other diabetes treatments, such as insulin injections, for many years. It uses different property and equipment than the autoinjectors, leading to an increase in overall capacity for GLP-1s, management has said. The company expects to receive the additional approvals necessary to launch Mounjaro in KwikPen form sometime this year. In a note to clients earlier this month, analysts at Morgan Stanley said that sales of Mounjaro and Zepbound outside the U.S. could be “a source of upside pending Kwikpen rollout.” “We see the roll-out of Kwikpens to ex-US geographies as one way LLY could drive additional sales and bring their mix more in line” with Novo Nordisk, the analysts wrote. The firm estimated that Novo Nordisk generated about 35% of its GLP-1 sales outside the U.S. compared with about 20% for Eli Lilly. The introduction of Eli Lilly’s oral obesity pill, known as orforglipron, would represent the “bigger” boost to supply, Ricks said at the JPMorgan conference. That’s because the oral GLP-1 uses “totally different” manufacturing capacity than injectable versions and is generally “a lot easier” to make, Ricks said. Despite encouraging phase-2 data in June that showed the pill delivered impressive weight loss, the drug is still years away from being commercially available. (Jim Cramer’s Charitable Trust is long LLY. See here for a full list of the stocks.) As a subscriber to the 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 trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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