Disappointing sales, doubts about market size... Overseas weight loss drug stocks trading "retreat"

In recent years, the rise of new weight loss drugs has made Novo Nordisk the highest-valued company in Europe, while Eli Lilly has surged to become the largest pharmaceutical group in the world. However, this trend seems to be rapidly fading.

According to the Financial Times, due to disappointing clinical trial results for new drugs and sales data falling short of expectations for two consecutive quarters, the stock prices of both companies have retreated from their historical highs. Novo Nordisk has lost its title as the highest-valued company in Europe, and stocks related to weight loss drugs have entered bear market territory.

Although analysts predict that the weight loss drug market will exceed $100 billion in the next decade, some investors remain skeptical. Sachin Jain from Bank of America pointed out that the growth potential of the market is one of the main unknowns troubling investors. He stated:

"There is a 'big debate' about whether this market is an $80 billion pie shared by Novo Nordisk and Eli Lilly, or if we are wrong in our discussions and the actual size is much larger? There is currently a huge divide, and no one knows the exact number."

Eli Lilly's performance "goes down the drain," Novo Nordisk faces price reduction challenges

Eli Lilly's Q4 earnings report released last week showed revenue below expectations, marking the second consecutive quarter that Eli Lilly has failed to accurately estimate market demand for popular weight loss and diabetes drugs. The company's stock price fell 7% in one day.

Among them, the company's flagship diabetes drug Mounjaro generated approximately $3.5 billion in revenue in the fourth quarter, below the market expectation of $4.4 billion. Another weight loss drug, Zepbound, generated about $1.9 billion in revenue in the fourth quarter, also falling short of analysts' expectations of $2.2 billion.

Despite the short-term performance appearing somewhat weak, Eli Lilly remains optimistic about its prospects for 2025. The company expects full-year revenue in 2025 to reach between $58 billion and $61 billion, higher than the average analyst expectation of $58.72 billion. Bloomberg Industry Research analyst John Murphy noted:

"Expectations for Eli Lilly's growth are very high, so any small misstep in sales will be magnified, and they have almost no room for error."

Currently, Eli Lilly's price-to-earnings ratio remains as high as 55 times. Novo Nordisk's price-to-earnings ratio is 27 times.

Last week, Novo Nordisk's weight loss drug Wegovy and diabetes drug Ozempic were included in the list for U.S. Medicare negotiations, which means the company may significantly reduce prices in the U.S. starting in 2027. After the news was announced, Novo Nordisk's stock price was surpassed by LVMH, making it the second-largest listed company in Europe Invesco's global market strategist Ashley Oerth pointed out that since last October, when the chances of Trump winning the U.S. election increased, the entire healthcare sector has performed poorly. She explained:

"The Trump factor is an important component. We see the market leaning towards cyclical rather than defensive stocks, and healthcare belongs to the defensive sector."

Is the "Golden Age" of Weight Loss Drugs Cooling Off?

At the end of December last year, Novo Nordisk announced that its highly anticipated next-generation weight loss drug CagriSema failed to meet the goal of a 25% weight reduction in late-stage clinical trials. This news led to a loss of €90 billion in the company's market value. Barclays analyst Emily Field stated that the market had a "sentiment reaction" to Novo Nordisk not meeting its set standards:

"To some extent, not meeting this standard may raise issues of management credibility."

Nevertheless, some analysts and investors believe that if more participants opt for the highest dosage, CagriSema is likely to achieve the 25% weight loss target. Investors will have to wait until later this year for more trial data.

Faced with enormous market potential, a large number of biotech companies have emerged globally, hoping to compete with the two giants. They are committed to developing treatments that are easier to produce, more convenient to use (current drugs require injections), and have fewer side effects.

Private investors have recently made large-scale investments in some biotech companies: Verdiva Bio and Kailera Therapeutics each raised over $400 million, while Metsera, which has applied for an IPO, secured $215 million in funding in November. Large pharmaceutical companies are also scrambling to acquire weight loss drug candidates.

However, these new drugs still have a long way to go before hitting the market