(Bloomberg) — Novo Nordisk A/S has fallen behind Eli Lilly & Co. this year in the race to be the big stock market winner from obesity drugs. Analysts expect the Danish company to start catching up.
Most Read from Bloomberg
Less than a year after Eli Lilly began selling Zepbound, sales for its obesity drug are already more than half those of Novo Nordisk’s Wegovy treatment, helping the New York-listed stock jump 54% this year. Meanwhile, Novo Nordisk shares have fallen 25% since reaching a record high in June.
Analysts, though, see bigger gains ahead for Novo, predicting the stock will jump 25% in the next year, based on price targets compiled by Bloomberg, versus 13% for Lilly. The case for Novo: The company is taking steps to ensure it can keep up with booming demand for Wegovy, while at the same time trial results due this year on its next-generation weight-loss drug could spur further gains.
“Given the upcoming data readouts over the next 12 months, we see significant upside potential for Novo to outperform market expectations and regain its leadership in the weight-loss and metabolic drug space,” said Paul Middleton, senior portfolio manager at Mirabaud Asset Management.
The next milestone for both companies is imminent: Lilly reports third-quarter earnings on Wednesday, with Novo Nordisk scheduled for the following week. Investors will be focused on supply and demand dynamics for the blockbuster weight-loss treatments, drug pricing, and any shifts in market share.
Novo Nordisk has garnered much of the attention from investors in recent years, in part because it beat Lilly to market with its weight-loss drug, part of a class medicines known as GLP-1s. Novo won approval from US regulators for Wegovy in June 2021.
The resulting market frenzy fueled a meteoric rise in Novo shares that made the Danish drugmaker Europe’s biggest listed company by market value. Lilly lagged behind, getting the OK to sell the obesity treatment Zepbound in November last year.
Analysts estimate Novo Nordisk’s Wegovy and its sister drug Ozempic — a diabetes treatment that became popular among Hollywood celebrities looking to stay trim — had combined sales of $6.8 billion in the third quarter. Lilly’s Zepbound and diabetes treatment Mounjaro are projected to have generated $5.4 billion in the same period.
Novo, though, has hit some speed bumps. In September, the stock fell on disappointing data from a mid-stage trial for its weight-loss pill monlunabant, as well as a US Senate hearing on the drugmaker’s pricing for Ozempic and Wegovy. The Danish company declined to comment on its share price performance versus Lilly.
US prescription trends for Wegovy also caused market jitters. Still, the weekly figures can be volatile and Jefferies analyst Peter Welford said the latest data for Wegovy’s starter doses are “now only just below the volumes seen prior to the sudden decline.”
Investors also are focusing on manufacturing capacity for the in-demand drugs. Market expectations for the weight-loss treatments over the next few years are “very high,” meaning sustainable manufacturing is needed, said Jared Holz, health-care equity strategist at Mizuho.
“If that does not come to fruition, there’s risk around some of these estimates for both companies,” he said.
Lilly has been pouring billions of dollars into new plants and existing facilities and as of this month, US regulators say there’s no longer a shortage of Zepbound and Mounjaro.
Meanwhile, Novo Nordisk plans to buy three manufacturing sites, though that transaction has sparked criticism on antitrust grounds. The company is confident the deal is not anti-competitive, it said in an emailed statement, adding that it’s not aware of any rival GLP-1 products being manufactured at the sites.
Investors who are looking for Novo Nordisk shares to regain some momentum also point to late-stage study results for its experimental obesity medicine CagriSema, due this year.
The shot combines the medicine in Wegovy with another compound for weight loss and UBS Group AG analyst Jo Walton estimates Novo Nordisk shares could move by more than 10% — in either direction — depending on the outcome.
Despite Novo Nordisk being first to market with the obesity drug, Lilly shares actually have been the better performer over the long haul, returning 53% annually over the past five years versus 35% for Novo Nordisk.
Valuations for both companies have come down recently as other drug developers race to enter the obesity market. Novo shares trade at about 28 times expected earnings, making the Danish stock about 34% cheaper than Lilly — though it’s still in line with its own average valuation over the past five years.
The lowered valuations for Novo Nordisk and Eli Lilly provide an “attractive entry point” for long-term investors, said Mirabaud’s Middleton.
