Better Buy: Eli Lilly vs. Novo Nordisk. The Answer Is Becoming Abundantly More Clear.

It seems like just yesterday that vaccines used to combat the COVID-19 pandemic were all anyone in the medical world could talk about. Companies such as Pfizer, Moderna, and Johnson & Johnson captured myriad headlines as each of these businesses played an integral role in the development of vaccines used to treat COVID-19.

While these three players still contribute to the medical world in ways beyond COVID vaccines, the healthcare realm appears to have moved on to its next big theme: weight loss. Enter Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO), the makers behind blockbuster glucagon-like peptide-1 (GLP-1) agonists such as Mounjaro, Zepbound, Ozempic, and Wegovy -- all of which are used for either diabetes treatment or chronic weight management.

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Just to put into perspective how big a tailwind that weight loss space is for these companies, consider that Lilly's market value is larger than Pfizer's, Moderna's, and J&J's combined! Moreover, Novo Nordisk is now the most valuable company in Europe -- ahead of luxury fashion powerhouse LVMH Moët Hennessy.

While it's clear that Lilly and Novo Nordisk are having a moment right now, which of these stocks is the better investment? I'm going to explore several pieces of recent news surrounding both Lilly and Novo Nordisk, and by the end of my analysis, I'll determine which company I see as the better opportunity.

Wegovy versus Zepbound

While Lilly and Novo Nordisk have each been approved to treat weight loss, it's important to understand the finer details of their respective medications. Novo's Ozempic is approved by the U.S. Food and Drug Administration (FDA) to treat diabetes, while Wegovy is primarily prescribed for obesity care. In the same vein, Lilly's Mounjaro is approved by the FDA for diabetes, while its sibling treatment, Zepbound, is geared toward chronic weight management.

Earlier this month, Lilly released results from a clinical trial in which the company compared Zepbound directly against Wegovy. Over the course of 72 weeks, Lilly tested Zepbound and Wegovy on a population of adults with obesity or patients with "at least one weight-related medical problem and without diabetes."

Per the results of the study, patients taking Zepbound experienced a loss of 20% of their body weight on average. By comparison, those taking Wegovy lost around 14% of their body weight. A secondary endpoint discovery was that about 32% of patients taking Zepbound lost one-quarter of their body weight, while those on Wegovy only lost about 16%.

Image source: Getty Images.

Novo's latest fumble

On Dec. 20, Novo announced data from a phase 3 clinical trial showcasing its latest weight loss candidate, CagriSema. CagriSema combines the main active ingredient in Wegovy and Ozempic, semaglutide, with an amylin-based compound known as cagrilintide.

According to the trial data, patients taking CagriSema experienced a 22.7% reduction in body weight on average. While this handily outperforms the results of Ozempic, only 40% of trial patients experienced the targeted 25% reduction in weight.

To make matters worse for Novo, CagriSema's average weight loss of roughly 23% is barely superior to that of Zepbound (i.e. the 20% I reference above).

NVO data by YCharts.

Shares of Novo got absolutely destroyed on the CagriSema news, with the stock cratering as much as 28% just in one day.

Lilly is more than just a weight-loss company

While the lion's share of attention revolving around Lilly focuses on its progress in the weight loss realm, it's important for investors to understand that the company is a pretty gigantic and diverse operation.

Lilly also has several high-earning medications that are used to treat the likes of cancer and plaque psoriasis. This year, the FDA approved the company's Alzheimer's disease and eczema treatments as well.

Although it's still early days, I suspect Lilly's entrance into these markets will begin to bear fruit sooner than later, and further bolster the company's revenue and profit base by augmenting its fast-growing weight loss operation.

The bottom line

I see Lilly as the superior investment over Novo Nordisk -- and frankly, I don't think it's even close.

While I see the recent declines in Novo stock as a prime example of overblown panic selling, Lilly's progress against Wegovy -- combined with its diverse and growing medical portfolio -- make the company hard to pass up.

I think Lilly is a no-brainer opportunity for investors with a long-term horizon. The company is well-positioned to continue gaining momentum against Novo in weight loss while simultaneously leading the pharmaceutical industry as a whole.

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Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Johnson & Johnson, Moderna, and Novo Nordisk. The Motley Fool has a disclosure policy.