Is Eli Lilly Worth Trading Premium Novo Nordisk Shares? For Deutsche Bank analyst James Shin, the answer is: “yes, but not to this extent.” Shin initiated coverage of a number of pharmaceutical stocks, including Eli Lilly, on Wednesday. The analyst said he is concerned that Lilly’s valuation “meets fundamentals,” as he set a $535 price target on the stock and gave it a hold rating. Lilly’s shares have soared nearly 62% since the start of the year as excitement has grown over the potential of its portfolio, which includes an Alzheimer’s drug and tirzepatide, better known as Mounjaro for type 2 diabetes, and — from Wednesday — Zepbound on obesity. “The GLP-1 effect has lifted LLY’s FY24E EPS multiple to 48x – near all-time highs, leaving little room for upside,” Shin wrote in a research note. “LLY is also trading at a 16x premium to NVO…which seems stretched to us.” Shin’s price target suggests the shares are down about 9% from where they closed on Thursday. And it contrasts with the consensus on Wall Street, where the average price target is about $626.17 per share, with a Street high of $722 per share. LLY YTD Mountain Eli Lilly has been sharing since the beginning of the year. According to Shin, Lilly is worth a premium to Novo Nordisk because its portfolio is more diverse and has less exposure to insulin. However, he said, those benefits are offset by Lilly’s exposure to the Deflation Act, which could pressure U.S. drug prices. he said. “Year-end market momentum should also factor into LLY’s near-term stock outlook, as funds may need to realize LLY’s premium to offset weakness in the Biotech/Pharma sector.” A huge market The potential market for anti-obesity drugs is huge, with more than 40% of American adults having the condition, according to the Centers for Disease Control and Prevention. Obesity is chronic, meaning patients must take the drugs long-term or risk regaining weight. Many industry analysts see the market peaking at more than $100 billion in annual sales by 2030. Some have presented even richer predictions. Novo Nordisk and Eli Lilly are well ahead of their rivals. Their drugs suppress appetite and regulate insulin levels in the bloodstream by mimicking gut hormones. For Novo Nordisk’s Ozempic (type 2 diabetes) and Wegovy (obesity) the target is the glucagon-like peptide-1 hormone. Lilly’s Mounjaro and Zepbound also participate in GLP-1. However, the drug also mimics gastric inhibitory peptide, or GIP, which helps break down sugar and fat as well. In clinical trials, patients on Wegovy lost about 15% of their weight, while those on Zepbound lost about 21%. NVO YTD Mountain Novo Nordisk Shares Year-To-Date In the coming weeks, Lilly will begin rolling out Zepbound to patients. The drug will be expensive, at a list price of $1,056 per month, but that’s about 20% less than Wegovy’s list price. As was the case with Wegovy, Lilly will have a savings card program that could reduce the cost of the drug for patients with commercial health insurance by up to $25 a month. Medicare cannot cover weight loss drugs. “While the net price for Zepbound could start above that of Mounjaro, we expect the net price for both products to decrease over time and ultimately be in similar ranges over time,” he wrote JPMorgan analyst Chris Schott in a research note. Supply constraints remain Insurance access to the drug is a barrier for patients, but production has also been a key limiting factor. Both drugs had periodic shortages. Since spring, Novo Nordisk has been limiting access to low doses of Wegovy in an effort to protect supplies for patients already using the drug. Both companies have also increased production capacity, but Novo recently said it will take years before it can produce enough Wegovy. “Given the global size of the opportunity, without knowing the supply capabilities of the competitors, then I think it will be several years, several years, before this market is unlimited on a global basis,” said Karsten Munk Knudsen, Novo’s chief financial officer. . he said on a recent earnings call. On Friday, Novo said it would invest more than $6 billion to expand a plant in Denmark that makes Wegovy and other products. During Lilly’s recent earnings call, the company said it was on track to double production of its incretins, which also include another diabetes drug, Trulicity. Schott said he expects both Novo and Lilly to sell nearly all of the product they are able to make in the coming years. Competition is coming And this is even as other companies want to enter the segment. On Thursday, AstraZeneca signed a licensing agreement with Eccogene to develop an oral GLP-1 drug Lilly and Novo are both working on oral anti-obesity drugs. Lilly CEO David Ricks told CNBC on Thursday that the company has six more molecules in development. Schott expects Lilly shares to appreciate as more is learned about the benefits of these drugs for other related conditions such as heart and kidney disease. It has an overweight rating in stock. One such catalyst looms ahead on Saturday. Novo Nordisk is scheduled to release the full results of its selected cardiovascular trial at the American Heart Association conference. The company previously said the trial showed that patients who received Wegovy reported 20 percent fewer major cardiac events compared with patients who did not take the drug. While initial results were positive, analysts were eager to see more details from the study. Other studies are also in the works for sleep apnea and heart failure, with data expected in the first half of 2024, Schott said. These trials were seen as critical to obtaining health insurance coverage and expanding the use cases of the drugs. These studies will also help to better understand these drugs, which are still unknown over time. There are some concerns about how long patients will decide to stay on these drugs because of side effects such as gastrointestinal symptoms. — CNBC’s Michael Bloom contributed to this report.