Eli Lilly shares fell 6% on Tuesday and are on track for their worst day since February after a downgrade from HSBC. The crux of HSBC's issue: Wall Street is too optimistic about the size of the GLP-1 obesity market. The company's analysts project it will be between $80 billion and $120 billion in 2032, compared to the current consensus above $150 billion. They also argued that price competition in the LPG-1 market is “likely to be significant,” though they note that Lilly's 2026 guidance implies the company will see enough volume growth to overcome pricing hurdles tied to its deal with the Trump administration. In that deal, unveiled in November, Lilly agreed to reduce prices on some of its obesity drugs in exchange for access to Medicare. Additionally, analysts said they are concerned that Eli Lilly's reliance on people purchasing drugs out of pocket (rather than through a health insurance plan) could become a problem if the U.S. economy hits a rough patch and middle-class people have less money to spend on GLP-1 drugs. They even mentioned the possibility of AI disrupting administrative jobs. HSBC acknowledged that Lilly's strength in the cash payment market is an advantage over its struggling rival Novo at the moment, but they are essentially saying it may not always be a welcome exposure. Another of HSBC's concerns is that Lilly's upcoming anti-obesity pill could prove to be a long-term disappointment if patients do not follow the medication. “We believe that the assumed market compliance and persistence in the case of oral administration is inconsistent with discontinuation rates in clinical trials,” they wrote. “Overall, we don't like the risk/reward balance of Lilly stock,” they added. LLY 1Y mountain Eli Lilly stock performance over the past 12 months. It is difficult to refute some of HSBC's long-term concerns at this very moment, given that the evidence of obesity pill adherence and cyclicality in the cash market is based on future assumptions. At the same time, price war concerns have some merit and we have previously recognized them as a risk we should monitor. But in our view, HSBC is as bearish on the LPG-1 market as we have seen lately. So this is definitely a non-consensus decision. Our view remains that Lilly's pill will be a big success because it provides 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 was the first to market a GLP-1 for obesity in January, called the Wegovy pill, and it has been a rare bright spot for the Danish drugmaker. We have also believed that insurance coverage for GLP-1 will continue to increase over time, as it becomes more evident that they improve patients' health in other areas, such as helping to prevent cardiovascular disease. Lilly and Novo trials, in fact, have repeatedly shown that these drugs provide benefits beyond weight loss. The more insurance coverage there is, the less reliance there should be on the cash payment market. (Jim Cramer's Charitable Trust is long LLY. See here for a full list of 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 fund'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 INVESTMENT 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 THE RECEIPT OF ANY INFORMATION PROVIDED IN RELATION TO THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR BENEFITS ARE GUARANTEED.
