Eli Lilly vs. Novo Nordisk: Which Is the Better Stock Buy?

Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) have a lot in common. They both have made significant breakthroughs in the market for diabetes medicine, a field in which they have been competing with one another for decades. Now, they are also competing in the weight loss market, which is projected to grow rapidly in the coming years.

Given the high demand for this relatively new product category, which of these two pharmaceutical giants is the better bet for investors to cash in on the weight loss craze? In my view, there is no contest: It's Eli Lilly. Let's find out why.

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The leader in the weight loss market

Novo Nordisk had a first-mover advantage in the market for weight management medicines. Diabetes drug Ozempic was introduced in 2018, and its effectiveness as a weight loss drug soon had doctors prescribing it off-label. Eventually, Wegovy (a different formulation of the same semaglutide drug in Ozempic) was approved in the U.S. in 2021, and for a little while, it had little competition. However, Eli Lilly's Zepbound (tirzepatide) received approval in late 2023 and has since overtaken Wegovy in terms of quarterly sales. That's not an accident. Zepbound proved more effective than Wegovy in a head-to-head clinical trial.

True, Novo Nordisk is making progress in this field. It recently earned approval for an oral formulation of Wegovy, which could help boost its sales by reaching price-sensitive, needle-phobic, cash-paying patients. It also submitted an application to the U.S. Food and Drug Administration for CagriSema, another promising weight loss therapy.

However, Eli Lilly isn't far behind. It's close to earning approval for its own oral weight loss medication, orforglipron, while retatrutide, a candidate it is working on, posted the best mean weight loss yet seen in the industry at 28.7% after 68 weeks. Both companies have other promising candidates. And from the looks of it, Eli Lilly will be able to fend off Novo Nordisk in this niche.

Eli Lilly's portfolio is more diversified

Novo Nordisk generates almost all of its revenue from its diabetes and weight loss products. It does not have any medicine that is in blockbuster territory outside of those markets. By contrast, Eli Lilly's lineup is more diversified. Eli Lilly markets Verzenio and Taltz, treatments for cancer and plaque psoriasis, respectively, that both generate over $1 billion in annual sales.

Eli Lilly has other new launches that could also reach that milestone. That includes Kisunla for Alzheimer's disease and Ebglyss for eczema. Further, Eli Lilly has significantly diversified its pipeline in recent years and now boasts promising programs across oncology, pain, immunology, cardiovascular health, and more. So, not only is Eli Lilly outperforming Novo Nordisk within what should be both companies' core growth drivers over the next five years, but the former is also excelling in other areas.

Does valuation change the analysis?

Novo Nordisk looks more attractively valued at first glance. It is trading at 16.4 times forward earnings, compared to Eli Lilly's 32.5, and the average of 18.6 for the healthcare sector. Even so, Eli Lilly is growing its revenue and earnings much faster than its peers, which justifies its premium. Eli Lilly is the better option even when considering valuation.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.