Why Eli Lilly Stock Flopped While the Market Popped Today

Wednesday’s trading session was a good one for many stocks; a notable exception was pharmaceutical sector mainstay Eli Lilly (LLY -3.65%). The company’s share price fell by almost 4% on the back of news that it’ll be shelling out a pretty penny for a new factory in Europe.

One-billion dollars at a minimum

That day, Reuters reported that Lilly aims to build a new facility in Western Germany that will cost in the single-digit, billion-dollar range. Citing unnamed “people familiar with the matter,” the news agency added that the storied pharmaceutical company will fund the project entirely through its own means.

The report was published very shortly after Lilly’s Mounjaro diabetes treatment was approved by both U.S. and U.K. healthcare regulators for weight loss (it’ll be marketed under the brand name Zepbound for the new indication).

While this puts it in direct competition with Novo Nordisk‘s (NVO -2.79%) Wegovy, demand for weight-loss drugs is high in this country, and Zepbound should do very well on the market. Consequently, Lilly would benefit from ramping up in-house production.

Yet $1 billion-plus is a lot of scratch even for such a well-capitalized and established company on the market. Assuming the Reuters article is accurate, the outlay for the German factory would be at least 42% of the total cash on hand Lilly held at the end of September. Considering that, it’s not surprising investors reacted a bit negatively to the report.

Likely a well-considered move

No one should buy, sell, or hold purely on this potential development, though. After all, we haven’t yet received confirmation from Lilly that it’s planning the German factory. Besides, the company’s management tends to be fairly conservative, so if it’s aiming to open its wallet for a new facility, there are likely very solid reasons for doing so — like big production runs of Zepbound.

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