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Since pharmaceutical giant Eli Lilly (NYSE: LLY) reported earnings for the third quarter on Oct. 30, shares have been punished by investors. As of this writing, Lilly's stock price has plunged as much as 14% since Q3 earnings, and it's currently trading 6% lower than it was prior to the report.

This precipitous sell-off has placed Lilly stock near its lowest levels in six months. Below, I'll explore what's been driving the sell-off, and assess whether Lilly has any catalysts that could make this price action a good opportunity to buy the dip.

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Why is Eli Lilly's stock price falling?

Two primary factors played a role in Lilly's current sell-off.

First, investors were not pleased with the financial results for the company's diabetes and obesity care drugs -- Mounjaro and Zepbound. Although both medications have become multibillion-dollar sources of revenue, Lilly has a mismatch between supply and demand. This dynamic can cause investors to doubt whether the company is taking the right approach to manufacturing and distributing its biggest sources of growth.

Second, constrained supply dynamics also allow competitors to take advantage of demand-driven bottlenecks. One such competitor that has emerged recently is telemedicine company Hims & Hers Health; it's offering patients compounded versions of mainstream weight loss treatments, which are not approved by the Food and Drug Administration (FDA).

Does Eli Lilly have any tailwinds?

While Lilly's supply constraints for its diabetes and obesity treatments might look like a cause for concern, management is addressing this issue head-on. Below, I've broken down what moves it's making in order to right the ship in its weight loss operation. I've also included several other opportunities Lilly has in the works.

• Facility upgrades: Earlier this year, Lilly acquired a manufacturing facility from Nexus Pharmaceuticals. A key goal for this deal was to bolster Lilly's manufacturing efforts, to better address the challenges of matching supply and demand for its medications. Recently, the company announced that it's investing an additional $3 billion into this new facility. The increased investment in infrastructure signals that demand is still robust for Lilly's products, making the company's long-term picture even more compelling.
• New distribution channels: Throughout the year, Lilly has formed new partnerships in an effort to expand access to its weight loss treatments. In particular, the company partnered with Amazon Pharmacy and start-up Ro, each of which offers patients a convenient direct-to-consumer (D2C) platform.
• Changes for tirzepatide: Just this week news broke that the main ingredient in Mounjaro and Zepbound, called tirzepatide, is no longer on the FDA shortage list. As Lilly continues increasing its manufacturing efforts and doubling down on alternative distribution outlets, I see competition from compounding drug producers such as Hims & Hers as less of a threat.
• Making headway against the competition: Right now, the biggest names in obesity care are Novo Nordisk's (NYSE: NVO) Wegovy and Lilly's Zepbound. In a recent study, Lilly found that Zepbound "provided a 47% greater relative weight loss compared to Wegovy." Per the trial, patients taking Zepbound experienced a 20% reduction in weight compared to those taking Wegovy, who lost around 14%. In addition, a report released on Friday suggests that a new GLP-1 product from Novo called CagriSema failed to meet management's expectations. While CagriSema appears to be a stronger drug than Novo's Ozempic and Wegovy, its most recent trial data suggests that its performance is essentially on par with Lilly's Mounjaro and Zepbound. As of mid-day trading on Dec. 20, Novo share prices fell by roughly 20% while Lilly stock gained about 5% on the news.

• A robust clinical pipeline: Mounjaro and Zepbound share a drawback in that each drug is administered via injection; for some patients, this approach is a turn-off. Lilly has been working relentlessly on an oral form of its glucagon-like peptide-1 (GLP-1) receptor agonists. Its primary candidate, orforglipron, has demonstrated some positive indicators during clinical trials. Should orforglipron gain approval from the FDA, Lilly may have an opportunity to gain incremental market share in the weight loss space from its primary competitor, Novo Nordisk.
• Opportunities beyond weight loss: Although much of the attention on Lilly is due to its progress in the weight loss realm, I'd encourage investors to look deeper. Just this year, the company gained approval from the FDA for new medications aimed at treating Alzheimer's disease and eczema. Industry research suggests that the combined total addressable markets (TAMs) for treating Alzheimer's and eczema are in excess of $60 billion.
• Continuing to reward shareholders: On top of its investments in manufacturing and new medications, Lilly is also investing in its shareholders. Earlier this month the company announced a $15 billion share buyback program -- a sign that management may see the stock as undervalued.

Is now a good time to buy Eli Lilly stock?

Although Lilly stock trades well above where it started the year, the current sell-off is the biggest drop since the summer:

And yet since Lilly stock took a breather back in July, the company received approvals for two new major drugs and has made important moves to ensure it can meet the roaring demand for its blockbuster weight loss treatments.

Declines of this magnitude are rare for companies like Lilly. If you're a long-term investor, I see the current price action as a great opportunity to buy the dip and lower your cost basis.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Eli Lilly, and Novo Nordisk. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.