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Eli Lilly and Company stock (NYSE: LLY) and Novo Nordisk (NVO) shares have soared in recent months on concerns about the companies’ respective weight loss/diabetes drugs tezepatide (also known as Mounjaro and Zepbound) and semaglutide (more Widely known as Ozempic and Wegovy), demand has soared.
Exceed Eli Lilly’s shares are up 76% over the past 12 months, while Novo Nordisk’s shares are up 58%. In comparison, as of the close on May 17, the S&P 500 had gained 28%.
Meanwhile, returns from other companies in Big Pharma have been mixed. Over the past 12 months, GlaxoSmithKline (GSK) has been the best performer, with shares up 25%, followed by AbbVie (ABBV), up 16%, Merck (MRK), up 14%, Novartis (NVS) and ABB Sereneca (AZN) reported single-digit gains.
On the other hand, Bristol-Myers Squibb (BMY) shares plummeted 34% over the same period, followed by Pfizer (PFE), which fell 22%, Roche (OTCQX:RHHBY), which fell 18%, Sanofi (SNY) and Johnson & Johnson (JNJ) There was a single-digit decline.
Thanks to rising share prices, Lilly and Novo Nordisk now have the largest market caps among big pharma companies, with $732B and $588B respectively, while J&J has $372B, according to Yahoo Finance data Ranked third, far behind Yahoo Finance data.
Which brings us to the amazing question: Are Eli Lilly and Novo Nordisk shares overvalued? We asked Seeking Alpha analysts Stephen Ayers, Edmund Ingham and Terry Chrisomalis for their thoughts on the issue.
Are Lilly and Novo Nordisk Overvalued?
Stephen Ayers: I believe the stock market is efficient most time. I wouldn’t call them “overrated” per se. We know that both companies have launched products that are improving health outcomes in our society, such as obesity, heart disease, and diabetes. The impact is huge.
Eli Lilly and Novo Nordisk, on the other hand, now rely heavily on one or two products. So while a high market capitalization may seem reassuring, investors should consider a higher-than-typical level of risk.
Edmund Ingham: Based on most of the metrics applicable to valuing “Big Pharma” companies – sales price, earnings price, dividend yield, revenue, etc. – the conclusion is that both companies are overvalued – market cap valuation >$700B and $545 B – is inevitable. That being said, Wall Street firmly believes that the obesity market will become a over $100B per year industry by the end of the century, and facts (such as 42% of U.S. adults being obese) seem to bear this out.
With such a unique, historic and monumental opportunity, logic and objective assessment of value tend to go out the window, so it was a surprise to see Eli Lilly become the world’s first multi-trillion dollar pharmaceutical company. I wouldn’t be surprised that Novo Nordisk isn’t.
Terry Chrismalis: I don’t think Eli Lilly (LLY) and Novo Nordisk (NVO) are overvalued. I say this because the obesity market is expected to grow rapidly in the coming years. According to Goldman Sachs research, the anti-obesity drug market could grow more than 16 times to reach $100 billion. Eli Lily has a market capitalization of about $700 billion as of this writing, but its growth prospects for the obesity market are very strong.
how so? Well, that’s because when it reported first-quarter 2024 earnings, it raised its full-year 2024 financial guidance by $2 billion, to a range of $42.4 billion to $43.6 billion. The reason is that Mounjaro and Zepbound are in high demand. I don’t expect the growth prospects of either drug to stop in the coming years.
For its part, Novo Nordisk also saw significant sales growth for its obesity drug program. Its weight-loss drug sales increased by 41% Danish kroner, reaching 11 billion Danish kroner. If these two companies can continue to see growth percentages like these in the obesity market space, then I don’t think they are overvalued.
