It's hard to overstate the surging popularity of Ozempic as a weight-loss drug. This diabetes treatment from Novo Nordisk (NVO -2.92%) has been shown to help people shed pounds, which put it on the tip of almost everyone's tongue. From last August through this March, the FDA had to warn pharmacists about a shortage that threatened the existing supply for diabetes patients.
If you've tried to watch any ad-supported television lately, you know that pharmaceutical companies are clamoring for our attention. The celebrity endorsements Ozempic keeps receiving, whether spoken or implied, are more than a little unusual, and they're causing sales to spike.
Before buying Novo Nordisk stock to take advantage of soaring weight-management sales, you should know that Eli Lilly (LLY -2.40%) has a weight-management program too. Some analysts think Mounjaro, a diabetes treatment from Eli Lilly, could become an even bigger weight-management drug than Novo Nordisk's.
Which one of these stocks is the best pick right now? Let's kick the tires to find out.
The case for Novo Nordisk
While Ozemipc is the brand name on everyone's lips when they talk about weight loss, it's only approved to control blood sugar and reduce the risk of heart attacks for patients with type 2 diabetes. Nevertheless, Ozempic sales soared 77% last year to $8.8 billion with help from off-label weight-loss prescriptions as well as diabetes patients.
Investors should know that roughly one in 10 Americans lives with type 2 diabetes. Demand from this huge population, plus folks who want to better manage their weight, keeps pushing Novo Nordisk's sales through the roof.
Rybelsus is an oral version of semaglutide, the active ingredient in Ozempic that first earned FDA approval to treat type 2 diabetes patients in 2019. Rybelsus sales more than doubled last year to $1.7 billion, and they'll likely continue soaring. In January, the FDA expanded Rybelsus' prescribing label to include newly diagnosed diabetes patients.
Wegovy is a weekly injection of semaglutide that earned approval for chronic weight management in 2021. Sales more than quadrupled last year to reach $912 million, and this figure will probably surge again this year. Last December, the FDA expanded its label to include teens aged 12 and older.
Steadily building on the semaglutide franchise has allowed Novo Nordisk to grow earnings per share by 125% over the past decade. Unfortunately, we aren't the first to notice how rapidly semaglutide sales are rising. Expectations for Novo Nordisk are so high that the stock has been trading at around 49.9 times trailing earnings or 32.6 times forward-looking earnings estimates.
If sales of Wegovy, Rybelsus, and Ozempic unexpectedly decelerate at any time over the next several years, investors who buy at recent prices could suffer heavy losses.
The immediate road ahead looks like a smooth one. The company recently adjusted its forward outlook sharply upward. Now, it expects sales to grow between 24% and 30%, and operating profits to climb between 28% and 34% this year.
The case for Eli Lilly
Last summer, Eli Lilly turned a lot of heads with weight-management trial results from Mounjaro, a drug approved last year to treat patients with type 2 diabetes. Mounjaro works along similar lines as semaglutide, and it might be an even better weight-loss drug.
After 28 weeks, patients treated with a maximum dose of Mounjaro lost 24.7 pounds on average. Patients randomized to receive a low dose of semaglutide lost 15.2 pounds, and patients who received a placebo lost nothing.
This data doesn't tell us how well Mounjaro will stand up to a full dosage of Wegovy, but it suggests it can at least compete. Investors want to keep their eyes open for results from the 72-week Surmount-2 trial expected later this month. Results in line with what we've already seen from Surmount-1 would give it a great shot at earning FDA approval as a weight-management drug later this year.
In addition to Mounjaro, Eli Lilly can look forward to the potential approval of donanemab, an experimental Alzheimer's disease treatment in late-stage development. Results from a pivotal 76-week study should be available any day now.
Eli Lilly hasn't grown earnings at nearly the same pace as Novo Nordisk, but expectations are extremely high. The stock currently trades for 45.7 times forward-looking earnings expectations. At this high multiple, any misstep for Mounjaro or donanemab could lead to a severe market beating.
The better buy
Wegovy is already approved to address chronic weight management, and Ozempic is a brand recognizable by most Americans. With this in mind, Novo Nordisk is probably the better stock for riding the weight-management trend.
While Novo Nordisk is probably the better weight-management stock, a more diverse product lineup and development pipeline make Eli Lilly the better overall pharmaceutical business.
A more reasonable valuation makes me want to call Novo Nordisk the better buy now, but that probably isn't the best course of action. Instead of choosing one or the other, buying and holding both stocks will allow you to realize gains even if Lilly muscles its way into Novo Nordisk's weight-management turf.
