Why Novo Nordisk Outshines Eli Lilly as a Value Play in the GLP-1 Space

The GLP-1 (glucagon-like peptide-1) receptor agonist market has become a battleground for pharmaceutical giants, with Novo Nordisk (NVO) and Eli Lilly (LLY) leading the charge. While Eli Lilly has captured headlines with blockbuster drugs like Zepbound and Mounjaro, Novo Nordisk remains the superior value play for long-term investors. This article dissects the valuation, growth sustainability, and market sentiment mispricing that position Novo Nordisk as the more compelling investment in the GLP-1 space.

Valuation: A Tale of Two PEGs

Novo Nordisk's valuation metrics tell a story of undervaluation relative to its fundamentals. As of early 2025, the company trades at a P/E ratio of 19.79, significantly lower than Eli Lilly's 56.35. This gap widens when considering the PEG ratio—a metric that adjusts for earnings growth. Novo Nordisk's PEG of 0.69 (calculated using a 5-year EBITDA growth rate of 22.90%) suggests the stock is trading at a discount to its growth potential. In contrast, Eli Lilly's PEG of 4.43 implies investors are paying a premium for its current growth, which may not be sustainable.

The disparity is rooted in market sentiment. Eli Lilly's high P/E and PEG reflect optimism over its GLP-1 dominance, particularly with Zepbound's 21% weight loss results. However, Novo Nordisk's lower multiples are not a sign of weakness but rather a discounting of near-term headwinds, such as compounded drug competition and regulatory delays. These challenges are temporary and do not detract from the company's long-term potential in diabetes and obesity care.

Growth Sustainability: The Power of Core Markets

Novo Nordisk's dominance in diabetes care—a $90 billion market—provides a moat that Eli Lilly cannot match. While both companies compete in obesity treatment, Novo's Ozempic and Wegovy remain foundational products for Type 2 diabetes (T2D), a chronic condition with a stable, long-term demand. In Q1 2025, Ozempic and Wegovy accounted for 66% of Novo's revenue, with Wegovy's sales surging 83% YoY.

Eli Lilly's focus on obesity (via Zepbound) is a double-edged sword. While Zepbound's 21% weight loss outperforms Wegovy's 15%, obesity is a more volatile market with regulatory and reimbursement uncertainties. Novo Nordisk, by contrast, benefits from established reimbursement pathways for diabetes drugs, ensuring consistent revenue streams.

Moreover, Novo Nordisk's R&D strategy is leaner and more efficient. The company allocates 13.2% of revenue to R&D (Q1 2025), compared to Eli Lilly's 23%. Novo's pipeline includes CagriSema, a semaglutide-cagrilintide combination therapy, which is poised to extend its leadership in GLP-1s. This disciplined approach ensures sustainable growth without overleveraging the balance sheet.

Market Sentiment Mispricing: A Buying Opportunity

The market has underappreciated Novo Nordisk's long-term value. Despite losing 5 percentage points of U.S. GLP-1 market share to compounded drugs and Zepbound, the company retains a 62% market share in diabetes care—a critical differentiator. Eli Lilly's 53% share in obesity is impressive but exposed to reimbursement risks and therapeutic niche volatility.

Novo Nordisk's EV/Sales ratio of 5.10 (as of June 2025) is modest compared to Eli Lilly's 15.36. This reflects the market's skepticism about near-term challenges, which are already factored into the stock price. For value investors, this mispricing represents an opportunity to buy a company with a dominant core business and a pipeline of next-generation therapies.

Risks and Competitive Dynamics

No investment is without risk. Novo Nordisk faces intense competition from Eli Lilly's Zepbound and the looming threat of compounded drugs. However, the company's recent partnership with Hims & Hers and exclusive formulary coverage with CVS Caremark are mitigating these risks. Additionally, the expiration of compounded semaglutide's grace period in May 2025 is expected to stabilize Wegovy's sales.

Eli Lilly's agility and innovation (e.g., oral GLP-1 forforglipron) pose a long-term threat, but Novo Nordisk's scale and diabetes moat provide a buffer. The company's ability to diversify into new indications, such as MASH (metabolic dysfunction-associated steatohepatitis), further strengthens its competitive position.

Conclusion: A Value Play with Long-Term Legs

While Eli Lilly's GLP-1 dominance is well-earned, Novo Nordisk offers a more compelling value proposition for investors seeking long-term growth. Its lower P/E and PEG ratios, coupled with a dominant position in diabetes care and a disciplined R&D strategy, make it a superior choice. The market's current undervaluation of Novo Nordisk is a temporary mispricing, not a reflection of its long-term potential.

Investment Advice: Investors should consider a long-term position in Novo Nordisk, with a target entry range of $750–$800 (based on DCF analysis). Eli Lilly, while a strong performer, is overvalued relative to its fundamentals and carries higher growth risk.