Better Buy: Eli Lilly vs. Novo Nordisk

Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) recently reported their second-quarter financial results. All eyes were on their respective GLP-1 businesses, as they are the leaders in this field and generate most of their revenue from these products. Eli Lilly's results impressed the market, sending the stock higher post-earnings. The opposite happened with Novo Nordisk, and the company extended the market losses it has experienced over the past two years. Will Eli Lilly and Novo Nordisk continue moving in opposite directions? Let's find out which of these stocks is the better buy right now.

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Comparing their GLP-1 businesses

Eli Lilly's tirzepatide, marketed as Mounjaro for diabetes and Zepbound for weight management, is a direct competitor to Novo Nordisk's semaglutide, known under the brand names Ozempic and Wegovy. Tirzepatide has a different mechanism of action. It mimics the action of two gut hormones: GLP-1 and GIP, versus just one for semaglutide. This dual-pathway approach is one reason tirzepatide has proven more effective for chronic weight management. In a head-to-head study, it led to an average weight loss of 20.2% versus semaglutide's 13.7% after 72 weeks. Tirzepatide is posting much better sales as a result.

Focusing on the weight-loss segment, note that in the second quarter, Zepbound's revenue was $4.9 billion, up 46% year over year. Wegovy's sales came in at 19.4 billion Danish kroner -- or about $3 billion -- up only 1% compared to the year-ago period. Also, Zepbound outperformed Novo Nordisk's next-gen weight-management drug, CagriSema, in a head-to-head study conducted by the Denmark-based pharmaceutical leader.

Even when we look at their pipelines, Eli Lilly comes out on top. The company's retatrutide is an up-and-coming weight loss medicine that seems even more effective than Zepbound. True, Novo Nordisk arguably has the edge in the oral weight-loss market, with the Wegovy pill capturing a larger market share than Eli Lilly's Foundayo. Still, Eli Lilly is winning the GLP-1 battle overall and should continue to do so.

Beyond diabetes and weight loss

Eli Lilly's portfolio also features several promising drugs beyond its core therapeutic areas, including billion-dollar products such as Verzenio, a cancer medicine, and Taltz, an immunosuppressant. Several of its newer drugs could also eventually generate well above $1 billion in annual sales at their peak. The list includes Kisunla in Alzheimer's disease and Jaypirca in oncology. Eli Lilly has also significantly expanded its pipeline in recent years through acquisitions. Meanwhile, Novo Nordisk's potential outside its core area looks far more limited -- and its pipeline isn't nearly as large as Eli Lilly's. So, Eli Lilly is also a better company in this category.

A clear winner

Some may point out that Novo Nordisk is trading at 13.8x forward earnings, compared to an average of 18.5x for healthcare stocks, and a much higher 32.7x for Eli Lilly. However, Eli Lilly is growing its revenue and earnings much faster and beats Novo Nordisk on most other meaningful metrics. Eli Lilly is clearly the better buy between these two GLP-1 leaders.

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