Eli Lilly and Company (NYSE:LLY) and Novo Nordisk A/S (NYSE:NVO) were once viewed as the two big winners of the GLP-1 boom. However, the market’s view of the two companies has changed sharply. Since mid-2024, Novo’s stock has fallen roughly 74%, while Lilly’s has gained about 35%. That difference is also reflected in their valuations, with Eli Lilly trading at about 24.4x forward earnings compared with just 11.8x for its Danish competitor.
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The difference doesn’t appear to be just about valuation, though. Wall Street expects Eli Lilly to continue to produce strong earnings growth in the foreseeable future, while the consensus is that Novo could continue to struggle to grow during that period. The bigger question is whether Lilly has built a lasting advantage in obesity drugs, or whether Novo’s current problems are more temporary than the stock price suggests.
Bull Case for Eli Lilly
Eli Lilly’s biggest advantage right now is momentum. Mounjaro, Eli Lilly’s type 2 diabetes drug, and Zepbound, its chronic weight-management drug, generated a combined $14.9 billion in revenue in the second quarter, up $6.3 billion from the same quarter a year earlier, representing a robust 136% growth. In the US obesity market, Eli Lilly accounted for roughly six out of every 10 prescriptions in the quarter.
That momentum could become a moat if Eli Lilly and Company can keep bringing new patients into its ecosystem. The company has also launched Foundayo, its oral GLP-1, giving it another way to reach patients who may prefer a pill over an injection. Eli Lilly is also expanding manufacturing capacity to support its current drugs and future products.
The important point is that Eli Lilly’s advantage may not come from having one superior drug forever. It could come from having a broad portfolio, manufacturing scale, and a growing patient base that allows it to keep introducing new treatments as the obesity market develops. Eli Lilly spent about 16.6% of its second-quarter revenue on research and development, with R&D expenses rising 14% year over year to $3.8 billion.
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Bull Case for Novo
Novo’s enormous decline has made the valuation much harder to ignore. At less than 12x forward earnings, investors are paying considerably less for Novo than for Lilly, despite Novo still having an enormous global presence in diabetes and obesity.
The company has also not lost its underlying scale. Novo said it was treating nearly five million patients with its obesity products during the second quarter, almost 70% more than the same quarter last year, while Wegovy remained a major international product. Its management is also sharpening its focus on diabetes and obesity and redirecting resources toward those markets.
Novo is also building out its pipeline, including next-generation obesity treatments and oral formulations. If some of these products succeed, the current market view of Novo could look overly pessimistic.
Bear Case for Both
The biggest issue for Novo Nordisk A/S is that its recent problems are not limited to sentiment. Management has acknowledged intensifying competition and pricing pressure in both diabetes and obesity. Wegovy prescriptions in the U.S. have also softened, while the company has faced competition from compounded GLP-1s and changes in obesity-drug coverage.
Eli Lilly’s problem is a little different. The company has set a high bar for itself, with Mounjaro and Zepbound driving a huge share of its revenue. Keeping that growth going will require Lilly to stay ahead as competition in the obesity-drug market gets tougher.
Conclusion
Lilly currently has the stronger growth story, while Novo offers a much lower valuation after its dramatic decline. But the real debate is about the durability of their competitive advantages. Lilly needs to keep converting its current momentum into a broader franchise, while Novo needs its pipeline and global scale to prove that its recent setback is not a permanent loss of ground.
Market Sentiment
According to Insider Monkey’s database, 152 hedge funds held Eli Lilly at the end of the latest quarter, up from 132 in the previous quarter. The value of those holdings also increased significantly, from about $12.6 billion to $17.2 billion.
Novo Nordisk saw a much smaller increase in hedge fund interest. 59 hedge funds held the stock, up from 55 previously, while the value of their combined holdings rose from roughly $1.79 billion to $2.00 billion.
So, while hedge fund ownership increased for both companies, the jump in the value of positions was considerably larger for Eli Lilly.
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This article is originally published at Insider Monkey.
