Investor enthusiasm for anti-obesity drugs, once a major driver for companies like Novo Nordisk and Eli Lilly, has significantly cooled. After Novo Nordisk's next-generation drug, CagriSema, missed its target of 25% weight loss in a late-stage trial, and Eli Lilly reported lower-than-expected sales for two consecutive quarters, shares in both companies have fallen from their peak. Novo Nordisk is no longer Europe's most valuable company, and the anti-obesity sector has entered bear market territory. There's a "big debate" among investors about the actual size and growth potential of the market, with estimates varying widely.
The market's size has been difficult to judge due to manufacturing capacity issues that have caused demand to outstrip supply since the first GLP-1 drugs were approved for weight loss in 2021. Despite this, many biotech firms have emerged to compete, hoping to develop drugs that are easier to manufacture, more convenient to administer (current options require injections), and have fewer side effects like nausea and diarrhea. Private investors have backed these biotechs with substantial funding rounds, including Verdiva Bio and Kailera Therapeutics raising over $400 million each, and Metsera securing $215 million.
However, most of these next-generation drugs are still years away from the market. Investors are also concerned about the high valuations of Novo Nordisk and Eli Lilly. Eli Lilly, even after a 7% share drop, trades at a price/earnings ratio of 55, while Novo Nordisk trades at 27, despite a 21% share drop late last year. One investor noted that both companies have spent heavily on advertising without a corresponding sales growth spurt, raising concerns about the return on investment. The disappointing CagriSema trial, which showed an average 23% weight loss, led to a €90 billion drop in Novo Nordisk's market capitalization. Analysts believe that a more conventional trial design for CagriSema could have achieved the 25% target, but the trial design has led to a "credibility problem" for Novo Nordisk.
Eli Lilly also faced setbacks, with Mounjaro sales at $3.5 billion in Q4 2024, missing a forecast of $4.4 billion, and Zepbound sales at $1.9 billion, below an average estimate of $2.2 billion. Eli Lilly's CEO attributed some of the sales miss to wholesalers cutting inventory. While Eli Lilly still anticipates robust sales growth of 28% to 35% in 2025, the company admits the market is unpredictable. The general sentiment among investors is that "the easy money to be made has been made," and the market is now entering a more volatile and uncertain phase. The focus is shifting towards drugs that offer better tolerability and muscle preservation, as current GLP-1 drugs can cause side effects like nausea and vomiting in a significant percentage of patients, and some patients regain lost weight after stopping treatment.
