Is This News From Novo Nordisk a Warning for Eli Lilly Shareholders?

Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) have been leaders in an area that's seen explosive demand over the past few years: the weight loss drug market. And growth is far from over. Analysts expect this market to expand to nearly $100 billion by the end of this decade. Novo was the first to enter, with semaglutide. Though this product was initially approved as Ozempic for type 2 diabetes back in 2017, it won the OK as Wegovy for obesity soon afterward. Regulators also gave the nod to Lilly for its tirzepatide, sold as Mounjaro and Zepbound for those indications, respectively.

These products are part of the hot class of drugs known as GLP-1, and they've been the talk of the town worldwide thanks to their ability to help people along the path to weight loss. Though Novo led the market in its early days, last year Lilly slipped ahead with 60% share in the U.S. market. At the time, both companies sold uniquely injectable GLP-1 drugs.

Today, however, a new growth catalyst has emerged, and it's the GLP-1 pill. Both companies recently won approval for their oral drugs, and now the race is on to see which one emerges as the leader. With this in mind, is the following news from Novo a warning for Lilly shareholders? Let's find out.

Image source: Getty Images.

How GLP-1 drugs work

First, let's take a closer look at the products from both of these market giants. Here, I'm talking about the companies' injectables, which patients self-administer on a weekly basis. Novo sells the classic GLP-1, which targets one hormonal pathway involved in the digestion process. This helps the body's regulation of appetite and blood sugar levels. Lilly's drug, as a dual GIP/GLP-1 receptor agonist, operates in much the same way -- but it stimulates two hormonal pathways.

As mentioned, though Novo entered the market first, Lilly caught up and even surpassed this market giant. One reason may be performance, as Lilly's Zepbound in a head-to-head study delivered superior weight loss than Novo's Wegovy.

As a result, Lilly's revenue has soared. For example, in the recent quarter, Zepbound's revenue climbed 80% to $4 billion, and that helped lift the company's total revenue to nearly $20 billion.

Now, both companies are betting on their oral weight loss drugs to offer a fresh boost to growth -- and these products may confirm which player will take the lead in the quarters to come.

Once again, Novo was first to market, winning approval for oral Wegovy in December. Lilly followed, gaining the nod for Foundayo (known in clinical trials as orforglipron) early last month.

A big boost for Novo Nordisk

Now, let's consider the latest news from Novo: Doctors wrote about 1.3 million prescriptions for oral Wegovy in the first quarter -- its first quarter of commercialization -- and as a result, the Wegovy brand now has captured 65% of new prescriptions in the U.S. Novo chief executive officer Mike Doustdar, in an interview with CNBC, called this a "turnaround situation."

Meanwhile, Lilly's Foundayo, available since April 9, has treated more than 20,000 patients to date.

Is this a warning sign for shareholders of Lilly? It's important to keep in mind a few points that have given Novo an early advantage. The pharma company was first to win approval, so it's normal that more patients are taking oral Wegovy today than Foundayo. Second, Foundayo's sales right now come from patients paying cash to access it; access through insurance should become available soon, and this is likely to drive growth. Finally, oral Wegovy is a pill formulation of Novo's injectable drug -- a drug that doctors and patients know well. Lilly's Foundayo is a new GLP-1 drug, so it may take a bit more time to introduce both parties to it and win their confidence.

Is this moment decisive?

So right now, it's not surprising that Novo's oral Wegovy is a step ahead of the Lilly product -- and I don't see it as decisive regarding which product will dominate. One element that I see as driving patients toward Lilly's Foundayo is the fact that, unlike oral Wegovy, it doesn't come with dietary restrictions. Patients can take it with or without food and drink at any time of day. This makes it a very convenient option, and people opting for pills over injectables probably like convenience.

And I actually think the fact that oral Wegovy's sales are booming might be a positive sign for both companies, as it shows that doctors and patients are very interested in oral formulations. These products could be the next growth driver for both weight loss giants -- demand is strong enough to push more than one player along the path to success.

All of this means I wouldn't see Novo's news as a warning for Lilly shareholders; instead, there's reason to be optimistic about a fresh phase of growth ahead.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.