Eli Lilly, Novo Nordisk Stocks Rise. One of These Obesity Drugmakers Just Hit a Landmark. -- Barrons.com

Dow Jones12-23 20:32

By Elsa Ohlen

The obesity drug race is heating up in more ways than one.

Eli Lilly, the world's biggest pharmaceutical company by market value, benefited from some good news Friday.

The Food and Drug Administration approved Lilly's blockbuster drug for weight-loss Zepbound to also treat sleep apnea, Lilly said in a statement shortly after markets closed.

Zepbound is the first and only prescription medicine approved by the FDA to treat moderate-to-severe obstructive sleep apnea in adults with obesity.

Lilly stock was up 1.4% to $778.80 in premarket trading Monday. However, Novo Nordisk, Lilly's main rival in the obesity-related drug space, was up even more.

Novo's American depositary receipts, or ADRs, were up 5.2% to $89.45 while its Copenhagen-listed shares jumped 8.8% in midday trading in Denmark.

Novo is paring some big losses on Friday when its American-listed shares closed 18% lower following disappointing trial results for its next-generation weight-loss drug CagriSema. Expectations for Novo's experimental drug achieved weight-loss of 25%, but results showed that patients on average lost 22.7% over 68 weeks -- about the same as Lilly's weight-loss drugs which are already on the market. Novo said it would start a new trial of CagriSema in 2025 to improve dosage.

The readout led analysts to reconsider expectations for CargiSema, which is predicted to reach the market by 2026. BMO analyst Evan David Seigerman lowered his target price to $105 from $156 reflecting the likely lower-than-expected CagriSema sales, yet maintaining an Outperform rating as "the [market] reaction was overdone."

It also means that the valuation of the two pharma giants is diverging. By Friday's close, Lilly traded at 34.3 times forward earnings while Novo was at 21.5 times, making the Danish drugmaker considerably cheaper than its U.S. rival.

Novo and Lilly currently dominate the obesity drug space. Lilly sells tirzepatide under the brand name Zepbound for weight-loss and Mounjaro for diabetes, while Novo sells semaglutide under the label Wegovy for weight-loss and Ozempic for diabetes.

The lucrative market is also attracting plenty of market entrants, including Amgen and Viking Therapeutics, but alternatives to Zepbound and Wegovy have yet to be approved.

The Lilly's development points to Novo's first mover advantage diminishing, but the shares in the Danish pharma company might be trading on enough of a discount for investors to offset CagriSema's shortcomings.

Write to Elsa Ohlen at elsa.ohlen@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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December 23, 2024 07:32 ET (12:32 GMT)

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