Although one of the top investment themes of 2023 was artificial intelligence (AI), there were several other serious contenders. The weight-loss market has emerged as a hot growth area, with diabetes and obesity treatments on the rise -- and the majority of top-branded medications are developed by just two companies.
Let's take a closer look at this duo in the pharmaceutical industry that are dominating the weight-loss market and assess why each stock presents an intriguing long-term buying opportunity.
1. Novo Nordisk
If you aren't familiar with Novo Nordisk (NVO 0.84%), odds are you've seen the commercials or heard the catchy jingles for its various weight-loss medications. Novo Nordisk is a Danish pharmaceutical company and the developer behind Ozempic, Wegovy, Rybelsus, and Saxenda.
The popularity of these drugs is off the charts, so much so that Novo Nordisk can't even keep up with demand. Nevertheless, the company's stock has surged over 40% so far in 2023, and as of now the pharmaceutical giant is the largest company in Europe by market capitalization.
Through the first nine months of 2023, Novo Nordisk increased sales by 33% year over year to 166 Danish kroner (approximately $24 billion). What's better is that the company's operating profits grew even faster, clocking in at 37%.
The primary contributors behind Novo Nordisk's stellar growth stem from Ozempic and Wegovy in particular. Ozempic owns 46% of the glucagon-like peptide-1 (GLP-1) market with its sibling product, Rybelsus, accounting for roughly another 12%. Moreover, demand for Wegovy is unprecedented as sales for the obesity treatment grew 467% in the U.S. alone.
Given Novo Nordisk's performance this year, investors might think the music will eventually stop -- or at least decrease in volume by a couple of decibels. While growth for any company eventually reaches maturity levels or could even plateau, I'm not worried right now about Novo Nordisk.
Several research firms and investment banks believe the addressable market for weight-loss medications could eclipse anywhere from $100 billion to $200 billion by 2030. The main undercurrent is that demand for weight-loss treatments is expected to rise over the next decade, with some estimating the number of diabetic people worldwide will eclipse 1 billion in the coming decades.
This underlines that the size of Novo Nordisk's core markets is set to expand, putting the company in a position to play a crucial role for many years. So, while the current sales trajectory is impressive, the long-term secular growth story looks strong. For this reason, 2024 could present a good time to begin dollar-cost averaging into Novo Nordisk stock for long-term investors.
Image source: Getty Images.
2. Eli Lilly
Another company making headway in the weight-loss market is Eli Lilly (LLY 1.19%). The company is home to popular medications Mounjaro and Jardiance, which combined for nearly $5 billion in sales so far this year and helped fuel Eli Lilly's stock price by 56%.
While Eli Lilly's market share in weight-loss medications pales in comparison to its rival above, the Food and Drug Administration (FDA) just handed the company a huge win -- potentially putting it in a position to leapfrog Ozempic. Mounjaro is used to treat diabetes, but its sister treatment Zepbound just received FDA clearance to treat obesity.
The ramifications of this approval could send shockwaves throughout the weight-loss market as Eli Lilly is now equipped with a one-two punch aimed right at Novo Nordisk. To get a sense of how big this could be for Eli Lilly, some analysts are forecasting that Mounjaro and Zepbound could combine for nearly $70 billion of annual sales.
Similar to Novo Nordisk, Eli Lilly's weight-loss medications appear well- positioned to take advantage of long-term tailwinds in an evolving market. However, what might make Eli Lilly even more attractive is the potential for some of its pipeline drugs.
The company's cancer drug Verzenio is its third-largest revenue stream -- generating $2.7 billion through the first nine months of the year. That said, Verzenio could quickly emerge into a much bigger force, potentially making Eli Lilly a more diversified and prolific long-term growth opportunity.
The bottom line
Novo Nordisk and Eli Lilly had stellar operating performances this year, and each stock has handily beaten the market. And while it's hard not to be enamored by the returns from 2023, as long-term investors, it's important to zoom out. Both companies pay a dividend. The chart below illustrates the total returns of Eli Lilly and Novo Nordisk over the past decade.
LLY Total Return Level data by YCharts.
With dividends reinvested, investors would have enjoyed stock returns of over 500% and 1,300% for Novo Nordisk and Eli Lilly, respectively. This long-term picture speaks volumes to how successful each of these companies has performed in a contested pharmaceutical landscape.
Even though demand for weight-loss medications is gaining momentum, I see this trend as simply another growth driver for otherwise extremely innovative and diversified businesses. Investors looking for long-term winners disrupting an impactful and growing market should seriously consider positions in Eli Lilly and Novo Nordisk.
