Eli Lilly’s Sales Slash… And How To Position Ahead Of Bank Results 1/14/25

0:03Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Money. Here's what's on tap tonight. Losing weight. Here's the ones red hot Eli Lilly seen their worst day since 2021. If the air can even come out of this trade, what's it mean for the other big winner of last year, AI and a social reckoning? We may be on the verge of a TikTok shutdown in the U.S., but that doesn't seem to be helping its competitors. We dive into the details coming up. Plus, big banks getting ready to report with JPMorgan, Goldman Sachs and more on deck tomorrow. Quantum computing stocks leap higher after a recent sell off and the reveal of two more trader acronyms.

0:38One of our traders came out with not just their picks, but a full definition. We'll let you guess who that was. I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ on the desk tonight, Steve Rosso, Dan Nathan, Guy Adami, and Julie Beal. We start off with the big GLP-1 drug maker drop. Eli Lilly sinking 6.5 % for its worst day since March 2021, shedding about$50 billion in market cap. The move coming after the company gave a disappointing and Q4 revenue outlook with sales of its blockbuster drugs ZepBound and Manjaro growing slower than expected. The news also taking a bite out of rival Novo Nordisk down 4 % today.

1:12That stock now trading at August 2023 lows. It's lost nearly half of its value since late June. And Viking Therapeutics sank almost 13 % today in sympathy with Lilly. That company's lead obesity drug is currently in mid-stage trials. Pramar, on all of this, Angelica Peebles joins us now from the JPMorgan Healthcare Conference in San Francisco. Angelica. Hey, Mel, that's right. Lilly's fourth quarter coming up short of expectations, and that is renewing fears that demand for obesity drugs might already be slowing. But Lilly CEO Dave Ricks telling Jim Cramer earlier today at the conference that it's not about demand.

1:49Because there's been supply tightness in the first half of the year, inventory levels rose in the retail channel. They rose in the wholesale channel because of uncertainty. As we become a much more predictable supplier, people are just pulling that down on demand. They've been able to work down their working capital, and patients can get the medicine when they want. Lilly's new CEO, or CFO, excuse me, also telling me that based on their 2024 guidance, what they did there was that they took with the trends that they were seeing earlier in the year when supply was tight, and that once there was more supply available, people started pulling back.

2:21They weren't ordering as much as they needed or as they were before because there was more supply available. And they also assumed that there would be more seasonal stocking toward the end of the year, and that didn't happen. So they're taking that out of their assumption for this year. So saying that there was just a few things that were a little bit out of whack in their guidance and some of those assumptions that they were making. And Lilly's fireside chat is getting underway in just a few minutes here. So I'm going to go in there and see what else they have to say. All right. Keep us posted, Angelica.

2:46Thank you. Angelica Peebles at JPMorgan Health Care. Our next guest sees Lilly's weakness as a buying opportunity. Mizuho Health Care Strategist Jared Holes joins us now. Jared, great to see you. Certainly has had an enormous pullback. Do you buy their explanation of the inventory sort of fluctuations from quarter to quarter? Great to see you, too. Yeah, I think I do. You know, this is obviously a moving target in such a fluid market. And there are so many things we still don't understand about all of the supply demand metrics in the market, which drugs are going to be preferred by patients and doctors, how long patients are going to stay on the drug.

3:25Are they going to be on these chronically, intermittently. So yeah, I think some of the supply commentary from the company makes a lot of sense. I just think there are so many variables that are just not yet understood. Novo had a big pullback as well. Is there any concern in your mind that there is an issue with demand since, I mean, Novo just closed its deal with Catalan, so it's prepared to produce a lot more vials of the drug? I don't think so. I mean, it comes up in every conversation, both professionally and personally around this drug class and how pervasive it is and how many patients are going to either want it or need it or a combination of both.

4:07And Novo and Lily have, I think, invested over$20 billion just this year in manufacturing. So I think we talk about this market as though it's much more mature than it is. But this is, you know, 2024 was really the first year where both Lily and Novo had approved drugs for obesity. I think we're just getting started. So I do think the demand is there. I think the one thing that gives me a little bit of pause is how long patients are going to be on the drug for. Hey, Jared, you know, as this gets approved for more and more things away from diabetes and obesity, do you expect, like, insurance numbers to go higher or the amount of coverage, whether it's employee, employers, that sort of thing.

4:52And I'm just curious, like, will that help demand? I would suspect it would. Hey, Dan. Yeah, I think so. I mean, sleep apnea, you know, various cardiac conditions, and maybe even Alzheimer's disease, as we get data for that later this year, if the efficacy is decent and the safety, I think will most likely be very good, at least versus, you know, the Biogen and Lilly drugs that are on the market, I would think that insurance is going to have to cover these for more medical conditions. So I think that's a definite. The question is when. And I think as we move forward here, we'll get more evidence of that.

5:28You know, as a couple, I think it was last quarter, David Rix didn't do a particularly good job explaining things during a conference call. I think he did a better job today. But when you're trading at the valuation it's trading at, you better have that story tight. Otherwise, this happens. So I know I think the average analyst price after today is still just north of$1 ,000. What's the case, though, Jared, if there is one where this thing can break down in a meaningful way? Yeah, what's going on? Yeah, I think the valuation is still the biggest constraint when you talk to investors about their willingness to own it.

6:03I think it's trading around 32 times the new 2025 estimates that are going to come out and north of 25 times 2026, obviously that pales in comparison to where the stock traded last year at this time, but it's still much higher than most of the other pharma companies out there. Does it break down? I think you need to see a couple quarters where the numbers do not inflect higher. I mean, this quarter, ZepBound missed numbers, Manjaro missed numbers. Again, we're talking about a very small variance. But in order for the stock to break down from here to answer the question, I think you need to see a couple of quarters where you really are starting to see evidence that the revenue is not meeting consensus.

6:50Jared, do you think that they diversify away from the fat loss drugs and they go with another area, or do they gobble up the smaller players? I'm long to name Altimmune, which has dipped below $500 million market cap. This one seems to be under pressure, but the efficacy seems to be better than the larger players. Yeah, it's a really good question. I mean, you've seen them diversify away over the past couple of quarters. They've done a couple of deals. They just announced yesterday a deal for a private company in the oncology space for about$2.5 billion, call it. Whether or not they can add to obesity or these cardiometabolic drugs is really just a question of overlap and how the government would look at that.

7:37I think as it applies to either an alt-immune or a bunch of these other much, much smaller publicly traded companies, it's going to depend on mechanism of action, things that are just much more detailed insofar as how the government would look at it. But I think we'll see what the oral shows. I mean, that data is coming out really soon. If there's any abnormality or inconsistency with the oral drug or for Glypron, then maybe they kind of have to dip their toe into another asset there. Jared, great to speak with you. Thank you. Thanks so much. Jared, Holes of Mizuho. We had mentioned before that Eli Lilly shares are at levels not seen since 2021.

8:17That was back before Monjaro was approved. That was before ZepBowl was approved, so all that gain is gone. Yeah, if you throw up a chart, I mean, I think we got down to 725 in April of last year and then again in November-ish. So there is a level of support that we're looking at right now. But with all that said, I mean, the risk-reward for the first time in a while I think sets up okay. You know what your downside is. It closed below 725. Analysts are still very constructive, and they believe that it's still early innings here. Valuation be damned. So as a risk reward, it's probably the best it's been in quite some time.

8:52As Jared had mentioned, there is the oral pill readout for Eli Lilly specifically. They have another drug, which is supposedly showing even better efficacy than the trisepatide that they already have approved on the market. Red at Trutide, Julie, would you take a flyer and Eli Lilly on this pullback? I think if you have a very long term orientation, I think this could be a compelling opportunity. But you have to do that with the understanding that there are probably going to be more bumps in the road. because I think any time you have something like this where expectations are extremely high, people really do move around.

9:26And this is such a unique and new class of drugs. I think we still have so many more questions in terms of, are people going to be on this long term? What are the kinds of dosages that they're going to prefer? That sort of stuff still needs to be resolved. And that makes it really difficult to be able to model any of this data. It's not that anyone is bad at their job. It's just it's really difficult to do this correctly. And so you're going to have risks of further steps down for sure. You know, when I look at the technicals on this, Guy flagged a couple of them. So in February and April and November, this is where Lilly should pop.

10:00And Novo, if you go back to August of 2023, that's where that one should pop. And we're looking at those similar levels. So if you're going to take a flyer out on one of these, these are the mainstay, these are the main anchors in the space, I think this is probably a good technical spot. All right. How many times have we, on the way up for both of these stocks, likened these trades to the AI trades that were very hot? Many, many, many times. What is happening right now? There are questions about demand for this drug. There are questions about the valuation of these stocks, Stan. This is a point that you were making earlier on our conference call.

10:37Yeah. And we've been making this for months and you could have been wrong for months. You could have just seen Lilian Novo sell off. And, you know, this is a very narrow trade, not too different than generative AI. And I think the comparison is pretty good. And I'll tell you why. Like, if we see the unusual enthusiasm and sentiment as it relates to generative AI, we know it's become a very narrow trade. The fateful eight is pretty much encompassed a lot of that enthusiasm. Yeah, there's some that are down market or so, and it's not too different than what we're talking about for last year about a lot of these other folks that are doing these trials in some of these drugs.

11:09So again, if you see a drop off in demand, if we see CapEx start to slow, if you don't see the use cases arrive for the generative AI trade, it's going to take some digestion. I just go back, man. Like we talked about this from the highs in 21 to the lows in 22. You had Tesla, you had Meta, you had Netflix, you had NVIDIA. They sold off 75 percent from their all time highs. Now, no one thought that could have happened before and they don't think it could happen now. And I'm not saying that's going to happen again. But NVIDIA could easily get cut in half. We're just seeing that in some of these names.

11:41Lilly was a trillion-dollar market cap, what, just three months ago, six months ago? And the TAM was to the sky and raised again and again with new applications, et cetera, just like the AI, right? The applications for AI, the total capex spending expected, the applications for AI. All of these expectations get loftier and loftier. And on the way up, people will say that because, you know what, you're not going to get any pushback. But it's the same thing. Valuations don't matter. It's different this time. Total adjustable market. We have a moat around our business. I mean, these are all things that, again, when things are going higher, people are just not in agreement.

12:16When things start to go pear-shaped, it looks a little different. And in terms of the AI trade, again, twice last year you saw NVIDIA with the pattern that we talked about, this engulfing pattern. And both times the stock went down anywhere from 35 % to 45%. You saw the same thing last Tuesday, I believe, when it made a new all-time high, closed on the low twice, almost two times normal volume. It is setting up for a very similar move. The obvious difference is Lilly on a one-year performance is up 15%, Nvidia is up 140%, so a lot more can be taken out of an Nvidia. What I think you're going to see is people don't need those complicated chips the way they're looking for an Nvidia.

12:57You can get another chip from a host of other semis. So I think what you might see is not the whole semi trade fail, just those larger cap tech names and then go into the smaller ones in the same space. A reversion trade, so to speak. Julie, so let's connect. I mean, if we are concerned about these trades, we are concerned about the valuation of these two areas, which were the hottest areas of the market. What happens to the markets overall? as we sit at this crucial moment ahead of the inauguration of Donald Trump next week, as we are expecting CPI numbers tomorrow? In earnings season, by the way.

13:34Yeah, I actually think that earnings season is going to be much more persuasive for investors than what's going on with these two. I think it's very possible that we continue to see better broadening, better improvement, better participation in other stocks. And, you know, the things that I think the parallels that we see in AI and with these GLP-1 drugs there are kind of important differences that I would really point to. One, with NVIDIA, the biggest challenge I see with that is just the level of customer concentration that they have. Half of their business is only in a handful of companies.

14:07That's not the case with all of these healthcare companies. And so there are fewer risks tangentially around a lot of these names, and that's where I would probably focus. But I think, again, the most important thing really is going to be earnings. We already had a report today on small business confidence that showed great improvements. And so the proof will be in the pudding if we see better CapEx, broadly speaking, outside of the MAG7. Yeah, on the earnings front, though, we got used to a lot of different companies and a lot of different areas of the market talk about AI in their conference calls.

14:38I think we were kind of tracking it. This quarter, just wait, constant currency. If you think about the last week of September where the U.S. dollar index, the Dixie was trading about 100. It just touched 110. When you think of that on a sequential basis, but also year over year, that's going to make a huge hit to some of the biggest earning contributors, which are also some of the biggest companies in the market. And so to me, I think that's something you got to keep a close eye on. But obviously, any deceleration is some of the fundamentals of these big stories. But those are two things that I think are going to be big headwinds for earnings growth this year.

15:08Dollar rates and policy uncertainty. All fair. All fair. Yes. Top mentions on conference calls. No, and we're going to mention, listen, PPI today, I think, initially gave people some, I don't know, a bit of relief, maybe some, oh, my sigh of relief that maybe things were not as hot as the market suggested. But the bond market didn't back off. I mean, 10-year yields are still 479. If that had been the case, you would have seen a precipitous drop. Tamar's the number, though. And I think a lot of people think you're going to start to see a reacceleration. I am one of those people, and I'll continue to say it.

15:42I mean, 10-year yields, I think, are going to 5%. Reacceleration, and therefore, what happens to the markets? Goes lower. I mean, almost by definition, it has to start. You know, when valuations matter in a higher interest rate environment. The only thing that the market has going for it is that PPI is seen to be a leading indicator where CPI is lagging and the Fed looks towards PCE. So you have a host of things where it gives the Fed cover, not that the Fed needs any cover, but let's wait for the PCE to come out. Those are a little bit more variable than the two numbers that are coming out this week.

16:12Julie, where do you stand on what the Fed does next? I think they're probably going to pause. I think that they, you know, if you look at the body language, it's certainly tending towards pause and towards more conservative, hawkish. But it's also, if you think about the backgrounds of a lot of the members, particularly Jerome Powell, you know, if Paul Volcker is your hero, you're probably going to always lean a little bit hawkish when it's a little bit uncertain. And I think that the cost of waiting as opposed to the cost of cutting and then being wrong is probably a lot lower. You know, Julie, though, I think is everybody's hero today because she's doing the show out there in Southern California, having to be evacuated from her home.

16:52Obviously, we wish her and everybody else the best. But the fact that she's doing the show tonight is testament to her. So my hero for the next 43 minutes. After that, who knows? After that, who knows? After that, who knows? And a quick programming note here. Be sure to tune in to Mad Money tonight for more exclusive interviews from the J.P. Morgan Health Care Conference. Jim is chatting with the CEOs of Merck, Cardinal Health, Abbott, and Regeneron. Catch all the interviews top of the hour right here on CNBC. Coming up, Boeing deliveries losing altitude. The drop in those numbers and the widening gap with their biggest rival next.

17:25Plus, a quantum leap in the quantum computing space. The group bouncing back after a major sell-off to start the new year. Will the energy continue for these names, or is the computing revolution still too far away? We'll debate that when Fast Money returns.

17:40This is Fast Money with Melissa Lee, right here on CNBC.

17:52Welcome back to Fast Money. Shares of Boeing losing altitude on a disappointing delivery number. The manufacturer delivering 30 airplanes in December, rounding out a lackluster production year, hampered by a slew of safety issues and a machinist strike. The December number bringing Boeing's total deliveries for the year to 348. That is less than half of the 766 planes delivered by rival Airbus. That was Airbus's best delivery number since before the pandemic. So can Boeing bounce back this year? And we should note, of course, that Boeing is the B in Tim's band trade, which we unveiled the other day.

18:26But you've also been talking positively about Boeing. Yeah, and I felt like a genius in the late December was trading 180. And obviously here we are back at 167. But, you know, I'll still say that secondary that was priced with 148 or so, maybe even lower than that. I think that's going to be for the foreseeable future, the low. And this move that we've seen back to these levels is a bit of a retracement off that low in the recent high we saw in late December. So I'm a believer. I get delivery numbers are important, but this is bigger than that. I think just an increment, a lack of bad news, if they can just get out of their own way.

18:59I mean, this could be a$220 stock and nothing changed. That's a big if. If you look at backlog, too, you have with Airbus, the backlog is 8 ,600. With Boeing, the backlog is 5 ,500. So it's not just deliveries. And to Guy's point, getting out of your own way, they can't. They don't seem to have the propensity to do that. And when you look at this stock, Guy talks about this a lot. The percent of revenue from the government is 54%. Wow. That's the only thing that keeps this stock afloat, right? Do you think that goes away? No, I don't think it goes away, but I think that when you have a new administration coming in that wants to haggle and save multiple trillions of dollars, they're going to be renegotiating every government contract.

19:47The bigger, the more susceptible you are to getting it cut. All right, but you think that Elon Musk, who owns, what does he own? What? SpaceX. SpaceX. Do you think he's going to be critical of Boeing and this Doge thing? I mean, it is a bit goofy, right? If they go in and they try to kind of, you know, the Starship thing was a big disaster. And SpaceX hasn't gotten up there and gotten these astronauts back. But we need a second source, right? You can't just rely on a private space company. But I just think it's interesting to your question about what the government might do. I think they kind of have to hold the line and they have to make sure Boeing does not fail.

20:20All right. There is a lot more Fast Monday to come. Here's what's coming up next. A rebound in the quantum space as the group bounces after a New Year's sell-off. But can the comeback continue or will this quantum leap turn into a negative charge? Plus, banks kicking off earnings season tomorrow and a big shakeup at one major player. What it all means for the financial space and for succession planning. You're watching Fast Money live from the Nasdaq market side in Times Square. We're back right after this.

20:57Welcome back to Fast Money. Quantum stocks jumping after the recent sell-off. Today's biggest winner, Regetti Computing. It shares up nearly 50 % today. D-Wave surging almost 24%. Quantum Computing and INQ also significantly higher. Are these names back on solid footing, or should we expect more volatility ahead? These seem like trading vehicles. I don't know, Grasso. They're definitely going to be trading vehicles, and you had pointed it out. When we were talking about Pixie Dusk, I have to take my time with that. I can't say that together. Pixie Dusk. That one, yeah. So I think that you're going to see the same sort of travel that we saw in AI.

21:31But AI had a much closer horizon than quantum. I will tell you, though, number one, I loved him, Rigetti, when he was with the Yankees. Right, guy? Absolutely. He was well. And I also would like to change. I haven't revealed my acronym. acronym, but I do have an R in it, and I would have liked to have replaced what my R is for Rigetti. After this 50 % pop. No, I would take it. It's still down for the year, right? It's still down for the year. So it's not really as aggressive as we're talking about. But I think that quantum, you're going to have to wait a lot longer. There's been everyone saying naysayers because they want to focus on their income strategy of AI first, and then they'll focus on quantum.

22:12I don't know. When Google, or Alphabet, I should say, when we were talking about the Willow chip and the advancement there. I mean, even Google's roadmap for quantum computing, you know, signify that commercialization is still decades away, even with the advancement of Willow, Julie. I mean, it seems I'm going to go out on a limb here. This is not an area you're invested in. Yeah, no, I think everything that's kind of in the quantum space is way too speculative for us. And it's not just that, you know, they don't have earnings, which they deeply do not have earnings, But, you know, they are also, especially regretty, it's very dependent on DOD funding with DARPA and other programs.

22:50And that makes me extremely nervous going forward because I don't think it takes much for that to dry up. All right. Meantime, get them while you still can. There are a limited number of tickets left for a special event coming up at the end of February. Fast Money Live. It is your chance to see the show in real life at Times Square here at the NASDAQ market site. You'll also be part of a live Q &A session with me, with the traders. What's more, you'll share cocktails with our gang, visit the Fast Money set. On your way out, we'll also give you a special commemorative memento only available to the people attending this event.