When it comes to investing in modern medicine, one area experiencing rising popularity is the global weight-loss market. To provide some context, data from Grand View Research suggests that the global market for weight-loss supplements may grow at a compound annual rate of nearly 17% between 2021 and 2028, reaching roughly $117 billion by the end of the forecast period.
In addition, a report from Morgan Stanley estimates that global sales of weight-loss drugs will reach $77 billion by 2030. And back in April, an analyst at Barclays spoke with CNBC about the global weight-loss drug market, saying that it could potentially reach $200 billion by 2030. While the range of the market size varies considerably among researchers, one thing is pretty clear: weight-loss drugs are in demand.
Market leader Novo Nordisk (NVO 0.84%) is a Danish drug manufacturer that's dominating the weight-loss landscape. However, despite the company's recent success, prudent investors should be aware of the competition and what it could mean for the growth stock long-term.
A prolific portfolio of products
Novo Nordisk has a large and growing funnel of treatments. But for weight loss and diabetes in particular, the company has an unparalleled arsenal that includes Ozempic, Wegovy, and Rybelsus. Whether you personally take these medicines or not, odds are you have witnessed their catchy commercials.
Through the first half of 2023, Novo Nordisk's total revenue grew 29% to 108 billion Danish kroner. However, peeling back the onion a bit will underscore how the demand for the specific treatments mentioned above is off the charts.
In diabetes, Novo Nordisk is seeing incredible demand for its glucagon-like peptide-1 (GLP-1) products, which include Ozempic and Rybelsus. During the second-quarter earnings call, management highlighted that the company now has a whopping 55% market share for GLP-1 products, with Ozempic accounting for 45% alone. Moreover, obesity care revenue increased 157% year over year thanks in large part to Wegovy's staggering results in the U.S.
If this weren't enough to excite investors, Novo Nordisk also used part of the earnings call to discuss its recent acquisition of Inversago Pharma. Novo Nordisk is shelling out up to $1.1 billion for the Canadian maker of obesity and diabetes drugs.
The company's most recent financial report illustrates the power of its portfolio; the addition of Inversago's therapies could open up entirely new end markets, geographies, and customers. In the weight-loss market, Novo Nordisk is not messing around. But that said, the company faces some stiff competition that shouldn't go overlooked.
Image source: Getty Images.
Don't discount the competition
In the diabetes market, perhaps the most obvious threat to Novo Nordisk is Eli Lilly (LLY 1.19%), the developer of a popular GLP-1 treatment called Mounjaro. Additionally, in conjunction with privately held German pharmaceutical giant Boehringer Ingelheim, Eli Lilly also markets a type 2 diabetes medication called Jardiance.
While competition can be healthy and sometimes help spearhead innovation, these products from Eli Lilly should not be taken lightly. Fellow Fool Keith Speights recently wrote a fantastic memo which detailed the rising popularity of Mounjaro, and its very real possibility of taking the crown in weight-loss treatments from Novo Nordisk.
Taking this a step further, Lilly is gunning for Mounjaro to win approval from the U.S. Food and Drug Administration (FDA) for obesity. Should it do so, approval would put Eli Lilly at direct odds with Novo Nordisk across multiple categories and treatments.
When it comes to valuation, think long-term
Given how ripe the competitive landscape is, it may not come as a surprise that Novo Nordisk and some of its peers have experienced some more pronounced stock-price movements this year:
NVO PS Ratio data by YCharts.
The main takeaway here is easy to see. Novo Nordisk and Eli Lilly trade at meaningful price-to-sales (P/S) premiums to other competitors such as Sanofi, AstraZeneca, and Pfizer. What I find interesting is that Eli Lilly trades at nearly two full turns higher than Novo Nordisk stock, although its popular Mounjaro drug is not yet approved for weight loss. There's a legitimate argument to be made that the future prospects of Lilly's potential advancement with Mounjaro are already priced into the stock. Nevertheless, it's not as if Novo Nordisk is trading at a huge discount.
The threat of Eli Lilly and others could have a direct impact on Novo Nordisk's business and its stock price. Ask yourself if you're comfortable justifying such a premium for the stock. Personally, I believe the market for weight-loss treatments will continue expanding. For this reason, even if Eli Lilly eclipses Novo Nordisk's market share, I think there will be multiple leaders in the long term.
One thing that I would not do is wait until the FDA decides to approve Mounjaro for weight loss. If Eli Lilly wins this approval, the news could have a direct ripple effect on Novo Nordisk stock, sending it downward. However, the reverse is also true. This dynamic can make timing your buys a daunting pursuit.
A decent strategy could be to dollar-cost average into Novo Nordisk stock over time, while also assessing the company's progress against the competition. While the shares aren't exactly cheap, the company's consistently strong results, coupled with the overall bullish sentiment of the weight-loss market, present a compelling thesis to buy.
