Investors generally buy pharmaceutical stocks to add an element of safety to their portfolios. People need their medicines regardless of the economic environment, and this fact ensures a level of stability and growth for pharma companies' earnings.
In recent years, though, certain drugmakers also have delivered a significant amount of growth. And this is thanks to one particular product portfolio: weight loss drugs. Novo Nordisk (NVO +3.05%) and Eli Lilly (LLY +0.32%) shares have climbed in the double- and triple-digits, respectively, over the past five years -- driven by sales of such products.
In more recent quarters, though, Novo stock stumbled while Lilly shares continued to march higher. The reason? Lilly's Zepbound -- launched two years after Novo's Wegovy -- quickly gained traction in the market, and the company's oral weight loss candidate has delivered strong results in late-stage trials. Investors liked this and piled into Lilly shares.
But Novo isn't sitting still as it faces this competition, and instead, the company just made a big move in the weight loss drug market. Now, should you worry about rival Eli Lilly? Let's find out.
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Novo Nordisk's first-to-market advantage
So, first a bit of background. Novo Nordisk entered the market first, serving the Type 2 diabetes market with Ozempic -- injectable semaglutide that acts on hormonal pathways involved in digestion. It's known as a GLP-1 receptor agonist. The company later won approval for semaglutide in weight loss under the name Wegovy.
Eli Lilly's tirzepatide acts on two hormonal pathways, so it's called a dual GIP/GLP-1 receptor agonist, and it entered the market as Mounjaro for Type 2 diabetes and as Zepbound for weight management.
Novo's semaglutide, for both indications, entered the market before Lilly's tirzepatide, so it had the first-to-market advantage. But high demand for these types of products offered Lilly a chance to carve out share, and tirzepatide's efficacy helped secure its growth. (A Lilly funded trial comparing semaglutide to tirzepatide showed tirzepatide provided greater weight loss -- about 20% versus around 13% after 72 weeks.)
The price of weight loss drugs
Today, especially considering the high demand for weight loss drugs, both companies are seeing sales growth, but the battle for dominance has shifted to the question of price. Health insurance commonly covers these products for the Type 2 diabetes indication, but insurers don't often cover them for weight loss alone. As a result, many patients have turned to self-pay options, offered directly by the companies.
NYSE: LLY
Key Data Points
And this brings me to Novo's latest move. The pharma giant cut prices of Ozempic and Wegovy to $349 monthly from $499 for current patients, and new patients can benefit from an introductory offer for the two lowest doses of the drugs for $199 monthly for the first two months. However, the highest dose of Ozempic remains unchanged at $499.
Could this decision weigh on sales of Lilly's products? It's important to keep in mind that Lilly also recently cut prices on its weight loss drugs -- for example, Lilly cut the price of the lowest-dose Zepbound pen to $299 a month. Like Novo, this applies to patients who buy their medicine directly from the company.
Demand for Lilly's products
I don't see Novo's move as one that will hurt demand for Lilly's products, and this is for a couple of reasons. First, demand for weight loss drugs remains high, so in many cases, patients will opt for what's readily available. Second, patients who currently take a Lilly drug and are satisfied with its performance may not be quick to switch to another product -- and the same applies to doctors, who are likely to stick with the product they regularly recommend.
All of this means that while Novo's move could make it easier for some patients to get in on these weight loss products and offer Novo's revenue a boost, it's not bad news for Lilly. Demand for weight loss drugs remains strong enough to continue fueling Lilly's growth in this market that analysts predict may reach nearly $100 billion by the end of the decade -- and that's great news for long-term investors.
