Shares of Eli Lilly (LLY 1.19%) and Novo Nordisk (NVO 0.84%) have been climbing steadily over the past 30 days, with the former gaining 19% and the latter rising by 12%. For mega-cap big pharma businesses, that's a truly astounding amount of growth, and it's all likely driven by one single massive new development.
As you may have guessed, the catalyst is directly related to their best-selling medicines for obesity and diabetes. Let's explore what's going on in more detail to see if it might be a relevant factor in an investing thesis for either company.
GLP-1 drugs might protect against certain cardiovascular risks
Appreciating the nature of the catalyst for these two stocks requires a quick science lesson, so strap in. Novo Nordisk's medicines, called Ozempic and Wegovy, are household names thanks to their impressive effects on diabetes and obesity. Those drugs are comprised of a molecule called semaglutide, and they work by targeting the receptor for glucagon-like peptide 1 (GLP-1) on patients' cells. Eli Lilly's diabetes treatment Mounjaro works in the same way, though it also targets a second receptor.
On August 8, Novo Nordisk reported that one of its clinical trials called SELECT had found that people who were administered a small dose of semaglutide each week experienced 20% fewer major adverse cardiovascular events (MACEs) over the five-year study period. In English, that means they had a lower risk of dying from a heart attack, having a stroke, or having a non-fatal heart attack.
What's more, the results are consistent with the prior body of scientific research on the topic of GLP-1 medicines and cardiac health. And given that the study population was composed of overweight or obese people over the age of 45 who were already confirmed to have cardiovascular disease, the implications of the findings are huge for investors.
Both Eli Lilly and Novo Nordisk could now seek additional indications for their medicines as general cardiac risk reduction treatments for older adults. Eli Lilly already has such a program in phase 3, but Novo hasn't disclosed any similar activity as of yet. While it'll doubtlessly take some additional research and development (R&D) spending to make that happen, the door is now open for a massive expansion of their markets.
Furthermore, being able to point to evidence that shows GLP-1 medicines are good for patients' cardiovascular systems will support the argument for clinicians to actually prescribe them in cases where their helpfulness may be in question.
What's the actual financial impact?
So it's reasonable to expect that Ozempic, Wegovy, and Mounjaro could see slightly more sales in their core target markets now, too, even if there aren't any expansions to their indications. And that's definitely something that contributes to the bull thesis for buying both stocks.
Before you go rushing to buy shares of these two companies, it's essential to appreciate the financial stakes. Novo Nordisk made around $2.6 billion in the second quarter of this year from sales of its GLP-1-targeted therapies out of a total of $7.9 billion for the period. In the same period, Eli Lilly's Mounjaro brought in $980 million out of a quarterly haul of $8.3 billion. So all of these new drugs are major drivers of growth right now.
When paired with the new study's findings, there's little reason to suspect that sales of GLP-1 medicines are going to be running out of steam anytime soon. And while both stocks are expensive in terms of their price-to-earnings (P/E) multiples, with Novo having a P/E of 43 and Eli Lilly with a staggering 78, GLP-1 drugs aren't the only things in their pipelines, or their portfolios of products on the market. So even if the new revenue stimulated by the fresh data is incremental for now, they should still be growing steadily for quite some time.
