Eli Lilly, Novo Nordisk soar with demand for weight loss drugs

Drugmakers Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) have been stock market superstars in the past year as demand for their breakthrough weight loss drugs has soared.

After big share price run ups, investors are wondering whether the big gains are over. The shares are certainly pricey. Both Lilly and Novo Nordisk have stratospheric price/earnings ratios, which means high expectations are built into current  prices.

Shares of Indiana-based Eli Lilly have climbed 130% in the past 12 months at their current price. Lilly markets the drug Mounjaro for Type 2 diabetics and Zepbound, a similar formulation, to treat obesity.

The value of shares in Denmark’s Novo Nordisk which markets Ozempic for diabetics and Wegovy for weight loss, has also taken off. They are 69% higher at their current price, adjusted for a 2-for-1 split in September. 

The consensus seems to be that the Ozempic era is just getting started. Both will face competition, but have a big advantage. They have proven drugs, which have received regulatory approvals. They are both using their research to improve the formulations and also develop drugs for other conditions. Both are expanding manufacturing capabilities, but still cannot keep up with demand. It adds up to several years of competitive advantage.

Here are some updates:

Eli Lilly (NYSE: LLY) Closed Tuesday at $766.63. All figures in US dollars.

Background:  Eli Lilly develops and markets drugs worldwide in such areas as diabetes, cancer, and arthritis. It was founded in 1876 and is based in Indianapolis. The company has annual revenues of $34 billion. Its diabetes and weight loss drugs are Mounjaro,  approved for Type 2 diabetes, and Zepbound for weight loss.

Performance: The shares are 31.5% higher year-to-date and have more than doubled in the past 12 months.

Recent developments: Lilly’s fourth-quarter revenue and adjusted earnings topped expectations on the strength of the launch of Zepbound, which received approval for weight loss in November. The drug generated $175.8 million in sales for the quarter.

Quarterly revenue of $9.35 billion was 28% higher than a year earlier. Net income rose 13% to $2.19 billion ($2.42 a share), for the quarter.

Dividend: The $1.30 quarterly dividend yields 0.69% at current prices.

Outlook: Lilly expects 2024 revenue to rise by 18% to about $40 billion and in an earnings call said it expects demand for weight loss drugs to outpace supply this year. It doubled manufacturing capacity for the drugs in 2023 and plans to expand again this year with “equal urgency.” 

Novo Nordisk (NYSE: NVO) Closed Tuesday at $129.38. All figures in US dollars.

Background: Novo Nordisk A/S is a Danish multinational pharmaceutical company with annual revenues of $33 billion. It is focused on diabetes care, medicines, and devices. Its main product is the drug semaglutide, which is used to treat diabetes under the brand name Ozempic. Its weight loss brand name is Wegovy.

Performance:  The shares are up 25% year-to-date and 69% in the past year.

Financials: The company reported better-than-expected 2023 earnings on Jan. 31. Annual sales rose 31% in Danish kroner to US $33.71 billion at constant exchange rates. Full-year operating profit jumped by 44% at constant exchange rates.

Recent developments: In March, the U.S. Food and Drug Administration (FDA) approved Wegovy for heart use, citing its ability to reduce cardiovascular complications in people with obesity and heart disease.

The FDA decision shows the widening appeal of the drugs beyond weight loss and regulating blood sugar. They cut the risk of heart attack, stroke, and death from cardiovascular causes by 20%, according to a late-stage Wegovy trial.

The decision could widen insurance coverage. In the US some employers and health plans are reluctant to cover Wegovy because of its $1,350 a month price tag for the four weekly injections.

Dividend: The $0.32 quarterly payment yields 0.69% at current prices. Novo Nordisk has an active share repurchase plan.

Outlook: The company expects sales to grow between 18% and 26% this year as demand surges for the use of Ozempic and Wegovy for obesity.  

This article appeared in the Internet Wealth Builder on Mar. 25, 2024.  For information on how to reprint this article please view this page.