Eli Lilly (LLY -1.30%) and Novo Nordisk (NVO -0.01%) are big pharma peers. They're also each other's biggest rivals, especially in the all-important market for weight-loss drugs, in which both are currently highly successful.
Right now, there are a few reasons to believe that Eli Lilly has the upper hand in this competitive clash. Those reasons support buying its stock, assuming you don't want to invest in both companies. Here are three things that are giving Lilly an edge.
1. The supply constraints blocking Lilly's revenue growth are easing
It's well-known that sales of new weight-loss drugs are powering earnings growth and share-price appreciation for both companies. Demand for those medicines, like Lilly's Zepbound and Novo Nordisk's Wegovy, is so intense in the U.S. that for months neither company has been able to manufacture enough to meet patient demand. In the second quarter alone, Zepbound brought in more than $1.2 billion in revenue, making it a blockbuster drug.
Such a mismatch between supply and demand was bound to be temporary. And with huge investments by both players into building new manufacturing facilities and inking deals with contract manufacturing organizations (CMOs), it's clear that the management teams are eager to unlock the trapped demand as fast as possible.
On that front Lilly looks set to edge ahead, even though its medicine was approved for sale a bit later.
As of its Q2 earnings report, Lilly's chief executive officer said he believes that in the U.S., all doses of Zepbound will be imminently removed from the official drug shortages list maintained by the Food and Drug Administration (FDA). That will open the door for doctors to begin prescribing the treatment for new patients again, bolstering the company's market share and top line.
Novo Nordisk, on the other hand, seems to still be on the back foot. There aren't firm timelines for when Wegovy will be out of a state of shortage, so it won't be able to grow as quickly.
2. Lilly is forging ahead with a key upgrade to a core program
Wegovy and Zepbound are officially intended to treat obesity, as well as a couple of its most common co-morbidities.
Both pharmas are performing substantial additional research and development (R&D) work, in the form of clinical trials testing their medicines to see if they might be useful in treating or mitigating those co-morbidities -- like sleep apnea, cardiovascular risk, and heart failure. If the company can convince regulators that its products are safe and useful for those conditions, each new indication is an expansion of the addressable market, and therefore of future revenue.
Not all expanded indications are created equal. Some may only increase the addressable market by a pittance; others, like treating heart failure, imply the opportunity for significant growth.
In Q2, it seemed like Novo Nordisk's bid to add heart failure to Wegovy's list of approved indications was a slam dunk, much as several of its prior attempts for other indications had been. Instead, discussions with regulators revealed their concern about certain issues; in early August, Novo Nordisk pulled its application from consideration, and resolved to try again early next year. That was quite unexpected -- and Lilly won't have that problem.
In fact, Lilly just wrapped up its phase 3 trial for the indication, and it's proceeding to send its materials to regulators as fast as possible. Even if the FDA takes plenty of time in reviewing the packet, there is no way Novo Nordisk could get the indication approved before Lilly, assuming the latter company does. Therefore, Lilly will likely get access to that new segment sooner, and subsequently grow more.
3. Lilly entered a new market first
Although Novo Nordisk isn't focused on developing medicines for Alzheimer's disease, it does have aspirations to compete in the emerging market for drugs that treat the condition.
It's currently investigating in late-stage clinical trials whether the molecule semaglutide, the active ingredient of Wegovy, might be helpful. Picking up an extra indication for Alzheimer's would, as previously discussed, increase the addressable market by quite a bit; it would also grant Novo Nordisk a favorable position in the market because there's little competition.
But Eli Lilly got there first. With the FDA's approval in early July of Kisunla, its new medicine for Alzheimer's developed specifically for that purpose, the business will now start to rake in sales. And Lilly's therapy might even have a couple of advantages over Biogen's medication, Leqembi, the first drug regulators approved to treat the condition. Should it prove more effective, its chances of quickly making inroads and gaining market share are pretty decent.
In sum, Lilly has simply one-upped Novo Nordisk a few times recently, and its shareholders are likely to reap the benefits. I don't think Novo Nordisk is a stock to sell right now, but if you're looking to buy just one of the pair, Eli Lilly has a bit more momentum.
