Eli Lilly vs. Novo Nordisk: Better Obesity Drug Stock?

Analysts project that the weight loss market will grow rapidly in the coming years. Investors looking to cash in on this may turn to the companies that lead this niche: Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO). These pharmaceutical giants have moved in opposite directions on the market over the past year: Eli Lilly has gained 40%, while Novo Nordisk's shares have dropped 42%. But that doesn't tell us which is more likely to perform well over the medium term. Let's decide that by looking more deeply into each company.

Image source: The Motley Fool.

Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »

The market leader

Eli Lilly's weight loss lineup includes Zepbound, which is currently the best-selling medicine in this niche. The company also recently received approval for Foundayo. This oral GLP-1 therapy is helping it expand its addressable market and attract patients who were hesitant to use injectable drugs. Eli Lilly is posting outstanding revenue and earnings growth, partly thanks to its dominance in chronic weight management. In the first quarter, the company's revenue jumped 56% year over year to $19.8 billion. Its earnings per share soared 170% year over year to $8.26.

In addition to its current crop of medicines, Eli Lilly has a deep pipeline in weight management. One of the more promising candidates it is working on is called retatrutide, an investigational therapy that mimics the action of three gut hormones, which could lead to improved efficacy. Retatrutide has performed extremely well in clinical studies so far. Meanwhile, beyond its weight-loss lineup and pipeline, Eli Lilly has important products and candidates in other fields, including oncology, immunology, and neuroscience. So, Eli Lilly isn't just a weight loss stock.

Can Novo Nordisk keep up?

Novo Nordisk was once the leader in the anti-obesity market. Now, the company is playing catch-up. However, several recent developments could help the Denmark-based drugmaker avoid being left in the dust by its competitor. Novo Nordisk launched its oral GLP-1, Wegovy pill, in January, months before Foundayo earned approval. Oral Wegovy has been a smashing success so far, with more than two million prescriptions as of the end of the first quarter. Meanwhile, the original injectable Wegovy continues to post decent sales growth, too.

Further, Novo Nordisk has earned approval for a high-dose formulation of Wegovy that is even more effective. This could help the company compete with Zepbound. Novo Nordisk also has attractive pipeline candidates, including its own triple agonist, UBT251. The company's amycretin, a dual agonist of the GLP-1 and amylin hormones, is also undergoing phase 3 studies in oral and subcutaneous formulations, while the company's CagriSema is expected to earn approval by year-end.

Novo Nordisk does not have a particularly impressive lineup or pipeline beyond diabetes and obesity, but the company could be one of the winners as the weight loss market continues to grow.

Which is the better buy?

Eli Lilly generates higher revenue and earnings while growing both faster organically. Eli Lilly also has a stronger lineup -- with Zepbound's efficacy unmatched by any approved weight-loss drug so far -- and a pipeline in its core therapeutic area that is just as deep as Novo Nordisk's. True, Novo Nordisk's forward price-to-earnings of 13 looks much more attractive than Eli Lilly's 31.3. The healthcare sector's average is 17.4. However, Eli Lilly has earned a premium given its dominance in weight loss and its diversified portfolio that boasts attractive candidates in other areas. So, Eli Lilly is a much better buy right now.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.