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Shares of $Novo-Nordisk A/S(NVO)$, a big drugmaker, have risen more than 50% so far this year because of the recent popularity of the weight-loss drug investment theme.
In addition, the latest second-quarter results showed that the company's revenue and earnings were growing strongly, and the sales growth of the weight-loss drug Ozempic is much faster than expected.
Novo Nordisk is arguably the best stock in the concept of weight-loss drugs, but when it comes to return on investment, $Eli Lilly(LLY)$ shares have risen more so far in 2023.
Last week, Novo Nordisk raised its 2023 outlook, including sales growth guidance to 32%-38% from 27%-33%, and operating profit growth guidance to 40%-46% from 31%-37%. The new guidance came as no surprise to the market, as the company also raised sales forecasts for type 2 diabetes drug Ozempic and weight loss drug Wegovy, a different brand name for semaglutide.
Under the star's drive, Ozempic has also been used by a large number of people to lose weight, and even led to a shortage of supplies.
How will Eli Lilly benefit from Ozempic's success?
Like Ozempic, Eli Lilly's Mounjaro is approved to treat type 2 diabetes, and it is often used for weight loss. Mounjaro is also in short supply because of the surge in demand. So it's easy to conclude that if Novo Nordisk has revised up sales growth for Ozempic and Wegovy, it's highly likely that Eli Lilly's Mounjaro sales growth will also be higher than expected.
In addition, Novo Nordisk's upward guidance may also raise investors' strong expectations for the U.S. Food and Drug Administration's approval of Mounjaro for weight loss. An FDA approval decision could come in early 2024, or even sooner.
Over the weekend, Eli Lilly gave the weight-loss pill concept another boost. Mounjaro helped patients lose an average of 26.6% of weight over a period of 84 weeks, according to a late study released by the company on Sunday.
Buy Eli Lilly stock?
Ozempic and Mounjaro sparked a lot of attention in the market, which is very rare. Wall Street analysts have even predicted that Mounjaro could become the world's best-selling drug with annual sales of more than $50 billion.
But does that mean Eli Lilly's stock is worth buying now?
On the one hand, after this year's rally, Eli Lilly's short-term growth potential has been digested into the stock price, and the price-to-earnings ratio is approaching 48, which is not suitable to buy now. As evidence, 12 of the analysts' price targets are also below current prices.
Mounjaro, on the other hand, may take several years to reach peak sales. Eli Lilly, meanwhile, has other growth drivers, including cancer drug Verzenio and type 2 diabetes drug Jardiance. In addition, the company's next potential mega-blockbuster, Alzheimer's drug donanemab, should soon be approved by U.S. and European regulators.
As a result, Eli Lilly is still suitable for long-term investors.
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