Eli Lilly and Novo Nordisk cut a striking figure – as the two pharma giants at the leading edge of the obesity-drug frenzy. The wild popularity of their pounds-slimming treatments has sparked an eye-popping stock rally and placed the pair among the world’s sexiest companies. But, last week, like so many of the market’s winners, they saw their share prices plunge. So, it’s worth taking a moment to take a closer gaze at what’s going on.
Novo Nordisk with its Wegovy and Ozempic and Eli Lilly with its Zepbound still dominate the market for weight-loss drugs that target obesity and diabetes. Injectable therapies slim folks’ waistlines, by mimicking a natural hormone (GLP-1) that makes a person feel full faster. Demand for these “miracle” drugs has far outpaced supply and the market is expected to increase to more than $100 billion by 2030. And, since these companies are expected to earn bigger profits in the coming years, their share prices have sprinted higher, with Novo Nordisk becoming Europe’s No. 1 company by market capitalization and Eli Lilly moving into the world’s top ten.
Over the past three years, only Nvidia has rocked harder than Eli Lilly. And only the two of them, plus Broadcom, have performed better than Novo Nordisk. Still, future growth expectations for these two pharma companies are lofty – and for 2026 (far right column), the forward price-to-earnings ratios at 45x for Eli Lilly and 31x for Novo Nordisk look expensive. Only Tesla is higher when using that valuation metric. And the thing is, when stocks trade at valuations that are that elevated, the slightest change in mood can send them into a tumble.
That could be coming: plenty of pharma rivals are angling to take advantage of the rush on obesity drugs. What’s more, investors have recently started to shift their focus to small and mid-sized stocks. And that’s helped the Russell 2000 index post its strongest two-week rally against the Nasdaq 100 since 2002. But it wasn’t just Nasdaq darlings that have been seeing sharp selloffs. A lot of the market’s recent winners – momentum, quality, and growth companies – fell in price. And that includes Eli Lilly and Novo Nordisk.
Trial data from some potentially competitive new weight-loss drugs have unsettled some investors. See, big pharma companies like Roche, Amgen, Pfizer, and Astra Zeneca all want a slice of the anti-obesity pie. And just last week, Roche announced some positive results from some early-stage trials. Its experimental once-a-day pill showed an average weight loss of 6.1% in four weeks. Now, it seems like the treatment may be better suited to keeping weight off, perhaps after a patient has shed some pounds with the help of Novo Nordisk and Eli Lilly’s injectable treatments. But, even with that limited use, Roche would have its foot in this most profitable of doors.
And the Swiss pharma brand isn’t the first competitor to announce positive trials for an oral GLP-1. Amgen announced early-stage results for a trial this year that showed a notable 14.5% weight loss after 12 weeks. Investors will be excited to see the treatments are in pill form, which typically makes them much cheaper to manufacture. Back in their own labs, both Novo Nordisk and Eli Lilly are working to develop new oral obesity drugs.
Now, those new potential drugs from Amgen and Roche aren’t expected to hit the market for a few years yet – their development is still in the early stages. And that leaves an open runway for Eli Lilly and Novo Nordisk to make hay for the next couple of years. By the time Roche’s new drug might come to the market, Eli Lilly and Novo Nordisk will likely have cleared their supply constraints – they’re already spending big bucks on increasing capacity.
But, remember, when stocks trade at rich valuations like Novo Nordisk and Eli Lilly’s do, even modestly bad news can hit them hard – and that’s certainly happened this month. But if you believe growth for the GLP-1 market is assured, and these two will stay on top, these stock dips are nothing more than an opportunity to buy more shares. Stocks never rise in a straight line.
Obesity is a major health issue that affects much of the world. So the GLP-1 market is expected to be huge, with many analysts expecting it to be a $100-billion market (or bigger) by 2030. And Novo Nordisk and Eli Lilly are expected to continue to be their dominant players.
Now, if insurance companies begin to pay for the GLP-1 drugs to treat a broader array of conditions, that could fuel even more growth for this market. That’s why the drugmakers are testing their treatments’ effectiveness for other conditions – heart failure, sleep loss, kidney and liver disease, and potentially even fertility issues.
But there’s one key risk looming for these drugmakers: the upcoming US election that could impact pharmaceutical prices, as cost reforms and expensive medicines could become a target as candidates strive to win votes.
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