Weight-Loss Giants Face Uncertainty
Eli Lilly and Novo Nordisk, the dominant players in the weight-loss drug market, are facing a potential challenge that could impact their stock performance. Despite reporting strong third-quarter earnings, shares of both companies declined, suggesting that investors are concerned about the sustainability of their growth.
Blockbuster Drugs Drive Revenue
Novo Nordisk’s Ozempic and Wegovy, as well as Eli Lilly’s Mounjaro and Zepbound, have become household names, generating billions of dollars in revenue. For the first nine months of 2024, Novo’s sales reached $29.4 billion, with its obesity drugs segment growing by 44% to $6.3 billion. Similarly, Lilly’s revenue rose by 20% to $11.4 billion, driven by strong Zepbound sales.
Softening Demand Raises Concerns
However, both companies reported slightly lower-than-expected sales for the third quarter, citing supply pressure and lower pricing. Management teams also trimmed their annual projections, indicating that demand for their cardiometabolic medicines is softening. This is not entirely unexpected, given that these drugs were recently removed from the official list of medicines in short supply in the U.S.
The Threat to Margins
To stimulate further demand, both companies will need to invest more in marketing, advertising, research, and development, as well as manufacturing capacity and commercial infrastructure. This increased investment will likely lead to narrower margins, potentially slowing down earnings growth.
Reality Check: Growth Is Not Over
While this new challenge poses a threat to Eli Lilly and Novo Nordisk’s stocks, it’s essential to remember that both companies are still worth investing in. The market for type 2 diabetes therapies and weight loss drugs is growing, and businesses can continue to report rising sales and earnings. To stay competitive, biopharmas will need to offer more value to patients, insurers, and healthcare systems, such as developing updated drugs with reduced side effects or lower prices.
A Shift in Strategy
Eli Lilly and Novo Nordisk are already exploring solutions to stay ahead in this competitive market. By investing in innovation and customer value, they can continue to reward shareholders. While the days of easy growth may be ending, these companies have the potential to adapt and thrive in a changing landscape.
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