Novo Nordisk or Eli Lilly: which weight loss giant is the best investment?

Novo Nordisk is the most commonly-held non-US stock among Saxo's 1.2 million global customers and, for most, a fruitful investment to date. Since 2021, the Danish company’s stock has risen by more than 300% - and is up 25% year to date.

This dizzying increase can be mainly attributed to the popularity of new weight loss medications, produced most notably by Novo Nordisk (semaglutide drugs Wegovy and Ozempic) and US pharmaceutical giant Eli Lilly (tirzepatide drugs Zepbound and Mounjaro).

Saxo believes that, given ongoing supply constraints and expected growth in the obesity treatment industry, both companies are likely to generate good returns for years to come.

But which of the major weight loss giants is actually the most attractive to invest in? Alternatively, should investors seek exposure to both companies to ensure they capture the broader growth trend in weight loss medication?

As seen in the graphs below, Eli Lilly (orange) is expected to grow their revenue significantly more than Novo Nordisk (blue) in the coming years, possibly due to the US company being further along in their research into Alzheimer's treatments.

Additionally, Eli Lilly took longer to get their weight loss medication, Zepbound, approved and launched compared to Novo Nordisk. Zepbound is generally considered a more effective medication with higher weight loss compared to Wegovy, and it is therefore expected that Eli Lilly will take significant market share from Novo Nordisk in the coming years.

As shown in the graph below, Novo Nordisk sold their first doses of Wegovy at the beginning of 2021. In mid-2021, Wegovy was approved in the USA, but until the end of 2022, sales growth in Wegovy was relatively modest. This may be because Novo Nordisk prioritised the production of Ozempic over Wegovy.

However, comparing Wegovy (blue) to Zepbound’s (orange) growth curve (approved for sale in the USA at the end of 2023), one can clearly see the difference in launch speed and aggressiveness.

In other words, Wegovy/Ozempic remains the market leader in weight loss medication, but Eli Lilly is quickly catching up to Novo Nordisk's sales figures and is expected to overtake Novo Nordisk within the next 12 months.

The market also expects Eli Lilly to surpass Novo Nordisk in terms of profit in the coming years. By 2028, Eli Lilly is expected to grow profits to USD 36.5 billion, while Novo Nordisk is expected to deliver around USD 26 billion in profit.

Therefore, it seems that Novo Nordisk will face significant competition from Eli Lilly in the coming years. Both companies are expected to grow strongly, but Eli Lilly is expected to grow significantly more than Novo Nordisk. However, Eli Lilly's stock is also significantly higher valued compared to Novo Nordisk, relative to the expected 2024 earnings.

As shown in the graph below, an investor today pays about 39 times the expected 2024 earnings for Novo Nordisk (blue), but 56 times the expected 2024 earnings for Eli Lilly (orange). However, looking at the expected earnings for 2028 relative to the companies' market value today, both trade at 22 times the expected 2028 earnings.

Novo Nordisk seems undervalued compared to Eli Lilly when looking at expectations for 2024. However, when considering the higher earnings growth expected at Eli Lilly compared to Novo Nordisk, the two stocks are currently valued at roughly the same level.

Therefore, we believe it makes sense for investors who are heavily invested in Novo Nordisk to take a closer look at Eli Lilly. The expectation is that the two companies will share the market for weight loss medications between them, and any new growth in Alzheimer's treatments will likely also be shared.

If an investor wants broad exposure to both weight loss medication and Alzheimer's treatments, they should consider whether there is room for both stocks in their portfolio.