To The Moon

The first week of August 2025 will be remembered as a pivotal moment for the pharmaceutical sector, particularly for the two titans of the GLP-1 weight-loss drug market: Eli Lilly ( $Eli Lilly(LLY)$ ) and Novo Nordisk ( $Novo-Nordisk A/S(NVO)$ ). In a dramatic turn of events, Eli Lilly saw its stock plunge by as much as 14.5% despite posting stellar earnings and raising its full-year forecast. Meanwhile, Novo Nordisk continued its precipitous decline, having already been halved from its 2024 peak, reeling from a severe guidance cut issued just a week prior.  

For investors, these sharp, divergent moves raise critical questions. Is this a buying opportunity for two market leaders, or a sign of deeper rot in a hyper-competitive market? To answer this, one must look beyond the headlines and dissect the fundamentally different stories unfolding at each company. Eli Lilly was punished for a crack in its armour of perfection, while Novo Nordisk is battling a structural crisis of competitiveness.

The Lilly Paradox: Stellar Results, Shattered Narrative

On August 7, Eli Lilly delivered a near-perfect second-quarter report. Revenue soared 38% to $15.56 billion, crushing estimates, while non-GAAP earnings per share jumped 61% to $6.31. The growth was fueled by the staggering success of its GLP-1 drugs, Zepbound and Mounjaro, which together now account for over half of the company's revenue. Confident in its momentum, Lilly raised its full-year revenue guidance by $1.5 billion.  

By all traditional metrics, the stock should have soared. Instead, it lost approximately $98 billion in market capitalisation in a single session. The reason was not in the earnings report, but in a simultaneous press release detailing Phase 3 trial results for its next-generation oral GLP-1 pill, or forglipron. The trial was a success, showing a statistically significant average weight loss of 12.4% over 72 weeks.  

The problem was Wall Street's sky-high expectations. Analysts and investors had hoped orforglipron would match or exceed the nearly 15% weight loss seen with Novo Nordisk's injectable Wegovy. The 12.4% figure, while clinically meaningful, shattered the "wonder drug" narrative that had propelled Lilly's valuation to over 40 times earnings. The market wasn't punishing bad results; it was repricing a stock that had been valued for flawless, revolutionary pipeline execution. The orforglipron data, merely "good" instead of "transformative," introduced uncertainty into Lilly's long-term dominance, triggering a valuation reset.  

The Novo Nordisk Crisis: A Battle on All Fronts

While Lilly's drop was a story of unmet expectations, Novo Nordisk's collapse is one of fundamental competitive erosion. The Danish pioneer of GLP-1s is facing a perfect storm that forced it to slash its 2025 sales growth forecast from a range of 13-21% down to 8-14%.  

The crisis stems from three core issues:

1. Clinical Inferiority: In a head-to-head trial, Lilly's Zepbound demonstrated superior weight loss of 20.2% compared to Wegovy's 13.7%. This clinical data advantage is decisive, allowing Lilly to capture over 57% of the total U.S. GLP-1 prescription market and a staggering 74% of new-to-brand obesity prescriptions.  

2. The Compounding Nightmare: Novo Nordisk is uniquely afflicted by a sprawling U.S. grey market for illegal "compounded" versions of its active ingredient, semaglutide. This issue arose from earlier drug shortages. The company now estimates that around one million U.S. patients are using these unregulated products, creating a "shadow market" that is "roughly equal" in size to its own branded GLP-1 business, directly cannibalising sales.  

3. Pipeline Stumbles: While Novo's next-generation candidate, CagriSema, showed strong results, it failed to clearly leapfrog Lilly's Zepbound. More concerningly, the company recently announced a major pipeline clear-out, terminating two other obesity drug programs, signalling potential R&D setbacks.  

Reassessing the Drug Stocks: An Investor's Guide

How should we view the earnings? Lilly's Q2 earnings confirm its operational excellence and the sheer power of its current product lineup. The stock dip was a reaction to future pipeline potential, not present performance. Novo's guidance cut, conversely, is a direct reflection of the intense competitive and market pressures it faces. Its financial results are a lagging indicator of the market share it has already lost.

Will fierce competition hurt profits? Yes, and it is already redefining the industry. The battle is no longer just about clinical data. It has morphed into a capital-intensive "arms race" in manufacturing. Lilly has committed over $50 billion to U.S. manufacturing since 2020, while Novo Nordisk is spending roughly $9 billion in 2025 on top of an $11 billion acquisition of three manufacturing sites from Catalent. This massive capital expenditure, aimed at preventing future shortages and building a new competitive moat based on supply chain reliability, will inevitably pressure margins. Furthermore, as more oral alternatives and competitor drugs enter the market, long-term pricing pressure is a significant risk.  

Is Novo Nordisk a buy after being halved? An investment in Novo Nordisk is now a high-risk, value-turnaround play. The stock is trading at a multi-year low valuation for a reason. A bull case requires believing that the new CEO can stabilise the company, that its massive manufacturing investments will yield a cost or supply advantage, and that the market has overly punished the stock for its current, well-documented problems. With the stock having lost two-thirds of its value from its June 2024 high, technical analysts are watching key support levels around $36 and $29. The bottom may be near, but the path back up will be arduous.  

Should you buy the Lilly dip? Buying Lilly's dip is a bet on continued, best-in-class innovation and execution. The orforglipron sell-off has arguably removed some of the "perfection premium" from the stock, offering a more reasonable entry point for long-term growth investors who believe in the sustained dominance of Zepbound and the potential of its deeper pipeline, which includes the triple-agonist Retatrutide. Despite the dip, the valuation remains high, and the stock demands near-flawless execution to justify it. However, the analyst consensus remains a "Strong Buy," with an average price target suggesting significant upside.  

The GLP-1 market is entering a new, more challenging chapter. The era of a single company's easy dominance is over. The competitive moats of the future will be built not just on R&D breakthroughs, but on manufacturing scale and supply chain resilience. For investors, the landscape has shifted from a simple growth story to a complex strategic battle, where picking the winner requires a deeper analysis than ever before.

@TigerWire