Novo Nordisk May Be Poised to Outpace Eli Lilly With This Key Catalyst

Novo Nordisk (NYSE: NVO) was the first company to produce a GLP-1 weight-loss shot. Technically, the shot was meant for diabetics, but its ability to help people lose weight hit home with more than just diabetics. The drugmaker couldn't keep up with demand, creating an opportunity for Eli Lilly (NYSE: LLY), which was second to market with GLP-1 shots. When Eli Lilly's drugs appeared to be more effective, it quickly took the lead in the new weight-loss niche. The two companies are competing for market share again, but this time, Novo Nordisk could have the edge. Here's why.

What's in the pill?

Novo Nordisk's GLP-1 drug is known as either Wegovy or Ozempic. They are the same compound, just targeted at different things: one is meant for diabetics, and the other for those looking to lose weight. Eli Lilly's GLP-1 shot is broken up similarly, with the brand names Mounjaro and Zepbound.

But when it comes to GLP-1 pills, there's an important difference. Novo Nordisk's pill is just Wegovy, which is a well-known drug at this point. Eli Lilly's pill is a new formulation called Foundayo, which means doctors and patients can't just look to Mounjaro and Zepbound for a therapeutic comparison when making a prescription decision. Simply put, it could be easier for a doctor to prescribe Novo Nordisk's GLP-1 pill.

People like pills more than shots

Very few people enjoy taking shots, so the pill version of GLP-1 drugs is likely to be where the greatest demand comes from. Novo Nordisk's Wegovy pill has seen early demand that is much larger than what it saw for its shots. Comparing the uptake of Novo Nordisk's pill to that of Eli Lilly's pill, it appears that demand for Novo Nordisk's pill is much greater. In fact, Novo Nordisk is happily telling investors that its Wegovy pill "is the strongest US GLP-1 volume launch to-date."

To be fair, weight loss is a huge addressable market. There is likely to be room for more than one GLP-1 drug. But Novo Nordisk's early lead with the Wegovy pill could be the catalyst that it needs to get back in the game. And it seems unlikely that the pharma giant will repeat the missteps (notably inadequate production capacity) that led it to lose the lead with its GLP-1 shot. When Wall Street starts to see the success of the Wegovy pill show up in the company's earnings, it may afford Novo Nordisk, with a price-to-earnings ratio of around 11x, a valuation more in line with that of Eli Lilly, which has a P/E ratio of 37x.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.