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Pharmaceutical stocks are seeing significant growth thanks to the popularity of slimming drugs.
Eli Lilly’s second-quarter results demonstrate the rapid increase in demand. Sales of their diabetes treatment, Mounjaro, which is expected to receive approval for weight loss this year, reached $980 million in the quarter, making it their second-best selling drug.
Eli Lilly and Novo Nordisk have experienced a surge in their stock prices. Eli Lilly’s shares have risen 77% in the past year, and its market capitalization now exceeds $500 billion, making it the most valuable drugmaker globally. Novo Nordisk has secured the third position with an 85% increase in its shares, driven by the success of their weight loss treatments, Wegovy and Ozempic.
In comparison, the NYSE Arca Pharmaceutical Index has only grown by 13% over the same period. Eli Lilly commands a higher premium, with its shares priced at nearly 46 times the projected 2024 earnings, which is one-third higher than Novo Nordisk. Typically, drug companies trade in the low teens.
In the United States, over 40% of adults are classified as obese. Analysts estimate that the market for GLP-1 drugs, a new class of drugs that aid in weight loss, could reach $150 billion by 2031.
However, weight loss alone is not the only reason to consider investing in Eli Lilly and Novo Nordisk. In the US, the government and many insurers do not cover the cost of weight loss medications. With current prices exceeding $1,000 per month, Mounjaro, Ozempic, and Wegovy are unaffordable for most Americans. To gain coverage from insurers, these weight loss drugs need to demonstrate additional health benefits.
Fortunately, both Novo Nordisk and Eli Lilly have promising news in this regard. Novo Nordisk recently reported that Wegovy reduced the risk of heart attacks and strokes by 20% in a study. Eli Lilly also announced positive results, stating that another weight loss drug they are testing reduced bad cholesterol by 20%.
Further testing is required, but drugs that address obesity, diabetes, and heart disease simultaneously would be beneficial for public health and the pharmaceutical industry’s profitability.
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