SA Roundtable: Are Eli Lilly and Novo Nordisk overvalued? (NYSE:LLY)

Eli Lilly shares (New York Stock Exchange: LLY) and Novo Nordisk (NVO) in recent months, driven by growing demand for the companies' weight-loss/diabetes drugs tirzepatide, also known as Mounjaro and Zepbound, and semaglutide, known as Ozempic and Wegovy.

more Over the past 12 months, Lilly shares are up 76% while Novo Nordisk shares are up 58%. By comparison, the S&P 500 was up 28%, as of market close on May 17.

Meanwhile, the rest of Big Pharma has been a mixed bag in terms of revenues. Over the past 12 months, GlaxoSmithKline (GSK) has performed best, with its shares up 25%, followed by AbbVie (ABBV) up 16%, Merck (MRK) up 14%, and Novartis (NVS) and AstraZeneca (AZN) which both… Single profits. -Gains numbers.

On the flip side, Bristol-Myers Squibb (BMY) shares fell 34% over the same period, followed by Pfizer (PFE), down 22%, and Roche (OTCQX:RHHBY), down 18%, along with Sanofi (SNY) and Johnson & Johnson. (JNJ) is seeing a single-digit decline.

Thanks to significant rises in their stock prices, Lilly and Novo Nordisk now boast the largest market caps in big pharma at $732 billion and $588 billion, respectively, with Johnson & Johnson a distant third at $372 billion, according to Yahoo Finance data. .

Which brings us to the magic question: Are Lilly and Novo Nordisk shares overvalued? We asked Seeking Alpha analysts Stephen Ayers, Edmund Ingham, and Terry Chrysomalis for their thoughts on the topic.

Are Lilly and Novo Nordisk overvalued?

Stephen Ayers: I believe the stock market is efficient Most Of time. I wouldn't call it “overrated” per se. Both companies have launched products that, to our knowledge, are changing the health of our society for the better, for example, obesity, heart disease, and diabetes. The implications of this are enormous.

On the other hand, Eli Lilly and Novo Nordisk are now largely based on one or two products. So, although the high market capitalization gives the appearance of comfort, there is a higher than usual degree of risk that investors should take into account.

Edmund Ingham: By most metrics applied to Big Pharma company valuation – price-to-sales, price-to-earnings, dividend yield, revenue, etc. – the conclusion is that both companies are somewhat overvalued – with market cap valuations of over About $700 billion and $545 billion – inevitable. However, Wall Street has little doubt that the obesity market will exceed $100 billion annually by the end of the decade, and the facts—for example, that 42% of American adults are obese—seem to bear this out. This is out.

With a unique and historic opportunity as large as this, rational and objective assessments of value tend to go out the window, and so I wouldn't be surprised to see Lilly become the world's first trillion-dollar pharmaceutical company, with Novo out of the question. far behind.

Terry Chrysomalis: I think Eli Lilly (LLY) and Novo Nordisk (NVO) are not overvalued. I mention this because the obesity market is expected to grow rapidly in the next few years. According to Goldman Sachs research, the market for anti-obesity drugs could grow more than 16 times to reach $100 billion. Eli Lily's market cap is about $700 billion at the time of this writing, but its growth prospects in terms of targeting the obesity market are going strong.

How is that? Well, that's because when it announced its first-quarter 2024 earnings, it raised its full-year 2024 financial guidance by $2 billion to a range of $42.4 billion to $43.6 billion. The reason is the high demand for Mounjaro and Zepbound. I don't expect the growth prospects for any of these drugs to stop for years to come.

As for Novo Nordisk, it has seen a significant increase in sales of its obesity drug program as well. Obesity drug sales rose by DKK 41% to DKK 11.0 billion. If these two companies can continue to see this percentage of growth in the obesity market space, I don't see how they can be considered overvalued.