Eli Lilly (LLY +0.34%) and Novo Nordisk (NVO +0.64%) give new meaning to the word "unstoppable" in the context of pharma stocks. Whereas the total return of Lilly's shares soared by 245% over the last three years, Novo Nordisk's rose by 165%, meaning that both easily beat the broader market's growth of just 25%.
There's little indication that either company is about to slow down significantly, even in the face of a couple of headwinds. In fact, I predict that their growth is more likely to accelerate for at least another year or so. Here's why.
NYSE: LLY
Key Data Points
Expect momentum to pick up even more
There are a few reasons to believe that Novo Nordisk and Eli Lilly are just getting started on their monster growth spree.
First, so far neither company has been able to meet all of the market's demand for their weight loss therapies, like Lilly's Zepbound -- in the U.S. or elsewhere -- even as supply conditions have improved. Nor have they been able to serve all of the market's demand for type 2 diabetes medicines, like Novo Nordisk's Ozempic, that use the same active ingredient as the weight loss drugs.
Both have invested billions of dollars in expanding their manufacturing facilities in the U.S. and E.U. They've also taken emergency actions like pausing new patient starts, and even suspending marketing activities, to ensure that existing patients have access to the tightly limited supply.
This state of affairs won't last forever, and by some estimates, there won't be a shortage of any of these products within a year.
But that's not the end of sales growth. It's the end of the acceleration of sales growth, currently artificially trapped beneath the demand level, which continues to rise. Just look at how much quarterly growth these two have registered in the last three years:
NVO Revenue (Quarterly) data by YCharts.
And that rate of growth is only from the first several quarters of demand for the core indications of these medicines. The revenue impact of the expanded set of indications that both companies are working to explore hasn't even started yet. In terms of trailing-12-month (TTM) sales, the two are nearly tied; Novo Nordisk had $37.4 billion in revenue, and Eli Lilly had $38.9 billion.
Within a few years it'll be clearer whether Novo Nordisk's molecule semaglutide (Ozempic and Wegovy) is able to treat the symptoms or pathology of Alzheimer's disease. It's currently being explored for that purpose in phase 3 clinical trials. It may not prove to be a cure. But if it's still a useful treatment, and regulators assent, marketing it for that indication will lead to even more growth.
In the longer term, some of the more speculative potential indications of these medicines, such as treating addiction or mood disorders, will be investigated. There is a solid chance that at least one of those possibilities will bear fruit, and eventually lead to yet another expanded indication and an even larger addressable market.
And that's before even getting into the significant number of research and development (R&D) opportunities (either ongoing or available) for competing more effectively within current markets.
For instance, Ozempic and Mounjaro are both formulated as injections, but there are clinical trials ongoing to develop pill formulations of each, which could reach more patients. Likewise, testing combinations of already-commercialized medicines, perhaps thereby creating more effective therapies, is a given; that will help to keep the growth train running, even as the original molecules lose their intellectual property protections and manufacturing exclusivity protections.
NYSE: NVO
Key Data Points
There's no shortage of avenues for future growth
As optimistic as the above may sound, it doesn't even cover all the opportunities that Eli Lilly and Novo Nordisk have before them in the coming years. Both are generating so much free cash flow (FCF) that their coffers will be difficult to empty even as they ramp up manufacturing and perhaps also reinvest into R&D.
One logical place their management teams may opt to spend excess cash is in collaborations, acquisitions, and licensing deals. Acquiring or collaborating with biotechs developing next-gen interventions would protect their market share, and lead to owning pharmaceutical assets that might be useful to bundle into a combination therapy, or to try to market for a medical niche that isn't adequately addressed. Likewise, licensing technologies, particularly in areas like advanced drug delivery systems and manufacturing, will help these two leaders to retain their edge.
There's also a good chance that these companies will return capital to investors via larger share-buyback programs, and perhaps hikes to their dividends. In short, the future is quite bullish.
