Eli Lilly, Novo Nordisk Stocks Plunge Despite Strong Sales

Two leading weight loss drug manufacturers, Eli Lilly and Novo Nordisk, recently faced significant stock price declines despite reporting strong financial performances. On Wednesday, Eli Lilly's stock dropped by nearly 4%, while on Thursday, Novo Nordisk's stock plummeted by over 14%. This sharp decline in stock prices can be attributed to the companies' inability to meet the exceedingly high expectations set by investors.

Novo Nordisk reported a second-quarter sales increase of 18% to 24 billion dollars, yet its stock price still fell by 3.9% on Wednesday. This decline followed a previous drop of over 20% the week before, triggered by the company's significant reduction in its full-year sales growth forecast. Similarly, Eli Lilly's stock price experienced a dramatic drop of over 14% on Thursday, despite a 38% increase in quarterly sales to 15.6 billion dollars. The reason for this decline was the underwhelming clinical trial data for its experimental oral weight loss drug, Orforglipron, which failed to meet analysts' high expectations.

The clinical trial results for Orforglipron showed an average weight loss of 11.2% in obese adults, which, while significant, fell short of the 14% to 15% weight loss anticipated by analysts. This discrepancy led to a wave of selling pressure, resulting in Eli Lilly's stock price plummeting towards its steepest single-day decline in 25 years. In contrast, Novo Nordisk's stock price rose by approximately 7% on the same day, as the company's oral version of Wegovy showed a 13% average weight loss in a clinical trial and had already submitted an application for FDA approval in May.

Both companies are facing intense competition in the rapidly growing GLP-1 weight loss drug market. Approximately 39 companies worldwide are developing oral GLP-1 drugs, with Structure Therapeutics expected to release trial results for its highly anticipated drug in the fourth quarter. Additionally, compounding pharmacies offering low-cost customized versions of GLP-1 drugs are eroding market share, despite FDA efforts to address drug shortages. Novo Nordisk has filed 132 lawsuits against these pharmacies, while Eli Lilly has also taken legal action against several of them.

The intense scrutiny and high expectations placed on these companies are driven by the enormous potential of the weight loss drug market. Morgan Stanley's research department predicts that the global weight loss drug market will expand from its current size of approximately 15 billion dollars to 150 billion dollars by 2035. The expanding applications of GLP-1 drugs, from weight loss to preventing heart disease and treating sleep apnea, further fuel market growth and investor expectations. However, the intense competition and high expectations also pose significant challenges for these companies, as they must continually innovate and exceed market expectations to maintain their competitive edge and support their stock prices.