Did Eli Lilly Just Say Checkmate to Novo Nordisk?

Though oncology remains the largest therapeutic area in the pharmaceutical industry, the weight management field has caught fire in the past few years. Eli Lilly (NYSE: LLY) is one of the undisputed leaders in developing anti-obesity medicines, with Novo Nordisk (NYSE: NVO) being its biggest challenger.

Over the past six months, Eli Lilly has earned significant wins over its Denmark-based rival and is still at it. Recent clinical trial results Eli Lilly released suggest that it is building a lead in the weight loss space. Should investors buy the company's shares? Let's find out.

Zepbound conclusively beats Wegovy

In December, Eli Lilly released top-line data from a phase 3 clinical trial that pitted its weight loss medicine Zepbound with Novo Nordisk's Wegovy. These preliminary results showed that Zepbound produced an average weight loss of 20.2% versus 13.7% for Wegovy. Unlike when we compare data from separate trials, a head-to-head study provides strong evidence of which drug is more effective, and according to this one, that's Zepbound.

Image source: Getty Images.

However, efficacy isn't all that matters. A more effective treatment could have a worse overall benefit-to-risk profile if it induces far more adverse events. The top-line data Eli Lilly shared in December did not reveal many details on this front, but the full clinical trial results the company recently posted do. Not only did Eli Lilly confirm the 20.2% versus 13.7% efficacy lead for Zepbound, but the drug also had a similar safety profile.

In a paper published in a peer-reviewed medical journal, the authors point out that 4.8% of patients on Zepbound experienced severe adverse reactions, versus 3.5% of those on Wegovy. Meanwhile, 6.1% of those taking Zepbound stopped the trial because of adverse reactions, compared to 8% of those on Wegovy. So, not only is Eli Lilly's weight loss medicine more effective, but its safety profile also looks similar to -- and certainly not significantly worse than -- that of its main competitor.

The new leader in the growing weight loss market?

Last month, Eli Lilly reported positive phase 3 results for orforglipron. This oral GLP-1 medicine could attract a reasonable number of patients, considering the current market leaders like Zepbound and Wegovy are administered via subcutaneous injection. Thanks to these recent developments, Eli Lilly could take the lead in this fast-growing market. The company's medicines in this field are already helping its sales grow rapidly. In the first quarter, Eli Lilly's revenue increased by 45% year over year to $12.7 billion.

Zepbound's sales came in at $2.3 billion, more than four times its Q1 2024 revenue. The company's diabetes medicine, Mounjaro (which shares the same active ingredient as Zepbound) generated $3.8 billion in sales, 113% higher than the prior-year quarter. The demonstration of Zepbound's superiority to Wegovy could help it make up some ground (the latter has been approved for longer). And that's before we mention various label expansions.

In December, Zepbound got one in treating obstructive sleep apnea in adults with obesity. In November, it announced it was seeking approval for this medicine in patients with heart failure with preserved ejection fraction and obesity, after it did well in late-stage studies in this indication. In August, Zepbound aced a phase 3 study in helping reduce the risk of progressing to type 2 diabetes for overweight or obese patients with pre-diabetes.

The compound is still undergoing clinical trials in other areas, including metabolic dysfunction-associated steatohepatitis, a disease linked with obesity, with a high unmet need. Beyond that, Eli Lilly has a total of 11 pipeline projects in treating obesity, according to the company's CEO, David Ricks. This field will explode through the end of the decade, according to analyst estimates. And although it will probably become even more competitive, Eli Lilly currently looks like the best-positioned company to cash in on this, even ahead of its eternal rival, Novo Nordisk.

Further, Eli Lilly has other things going its way. Its lineup features medicines beyond its core areas that are performing well, like cancer drug Verzenio and newer products that look destined to become blockbusters, like eczema treatment Ebglyss.

Lastly, the company is a top dividend payer, too. Eli Lilly has more than doubled its payouts in the past five years. Eli Lilly's shares have been somewhat volatile this year, partly because of marketwide issues but also due to disappointing bottom-line guidance for the fiscal year 2025. Further, the company's forward price-to-earnings (P/E) ratio tops 34.6, well above the 15.9 average for the healthcare industry.

Even so, Eli Lilly's incredible sales growth and market leadership in a fast-expanding therapeutic area justify its valuation. It could remain volatile in the short run, especially as the tariff threat may continue to rock the market. But for investors focused on the long game, Eli Lilly still looks like a top stock to buy and hold for a long time.

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