Eli Lilly and Company (NYSE: LLY) faced a sharp setback on Monday as HSBC issued a rare double downgrade, slashing its rating from “Buy” to “Reduce” and cutting its price target from $1,150 to $700.
The move comes amid mounting concerns about the pharmaceutical giant’s valuation, competitive landscape, and macroeconomic headwinds, sending shares down nearly 2% in early trading.
HSBC’s lead analyst Rajesh Kumar cited Eli Lilly’s elevated forward price-to-earnings ratio-currently around 40 times, compared to the S&P 500’s 20-as a key vulnerability in today’s uncertain economic environment.
The bank’s revised target implies a potential 21% downside from Friday’s close of $884.54, reflecting skepticism that the stock’s premium valuation can be sustained if growth expectations moderate.
A major driver of recent investor enthusiasm has been Eli Lilly’s leadership in the GLP-1 weight-loss and diabetes drug market, with blockbuster products like Mounjaro and Zepbound fueling rapid revenue growth.
However, HSBC cautioned that market expectations for the company’s next-generation oral GLP-1 candidate, orforglipron, could be overly optimistic. The analyst highlighted concerns about patient compliance and discontinuation rates, particularly at higher doses in type 2 diabetes treatment, which could limit the drug’s commercial potential compared to injectable competitors.
Competition remains fierce, especially from Novo Nordisk, whose Ozempic and Wegovy brands continue to dominate the GLP-1 space. HSBC warned that the market may be underestimating the impact of prescription cannibalization and the potential for prescription trends to shift once Novo’s compounders are halted in May. This could narrow the performance gap between Eli Lilly and its Danish rival.
Beyond product-specific risks, HSBC flagged broader industry challenges, including the threat of new U.S. tariffs, a looming patent expiration cycle, and regulatory changes to Medicare’s Part D and the Inflation Reduction Act.
The bank estimates that pharmaceutical earnings could face 6-14% pressure if a 25% tariff were imposed, while the financial impact of changes to Medicare’s catastrophic coverage phase remains unclear.
Despite strong fundamentals-such as 32% full-year revenue growth in 2024 and robust sales of new products-HSBC’s downgrade signals a shift in sentiment. The firm believes that the risk-reward profile for Eli Lilly is “not attractive” at current levels, especially given the stock’s rich valuation and the potential for near-term headwinds to weigh on earnings momentum.
While other analysts remain bullish, with some price targets still above $1,000, HSBC’s move underscores the growing debate over whether Eli Lilly’s stock can continue to justify its premium as the competitive and regulatory landscape evolves.
Investors will be watching closely as Eli Lilly prepares to report earnings and provide updates on its pipeline and market strategy in the coming weeks.