This Healthcare Stock’s Bad News Could Create a $10 Billion Opportunity for Competitors | The Motley Fool

After crushing the market over the past few years, Eli Lilly (LLY 2.73%) is finally feeling the effects of gravity. The company has faced a pair of setbacks this year. The latest one came when Lilly reported data from a phase 3 study for its investigational oral GLP-1 candidate, orforglipron. Results from this trial were not as strong as investors had hoped, resulting in a significant decline in Eli Lilly’s share price.

However, several other companies, particularly Eli Lilly’s main rival, could benefit from these developments.

The promising oral GLP-1 market

Eli Lilly is a leader in the market for GLP-1 medicines. The company’s Zepbound, indicated for weight loss, is racking up billions in quarterly sales. Its only real competitor in weight management is Novo Nordisk‘s (NVO 2.88%) Wegovy. Both therapies are administered subcutaneously once a week.

However, many people don’t like needles and would prefer oral pills. Additionally, pills are easier and less expensive to manufacture, store, and transport. That’s why an oral weight loss medicine that’s about as effective as subcutaneous ones could be massively successful. It would offer a significant advantage to patients with its easier delivery method, and also allow drugmakers to ramp up manufacturing and target even more patients. In other words, there’s a large untapped market here.

There is currently just one oral GLP-1 drug approved by the U.S. Food and Drug Administration: Rybelsus, marketed by Novo Nordisk (and indicated for diabetes). This medicine generated $3.6 billion in sales last year. But according to some estimates, the oral GLP-1 market could hit $20 billion by 2030. Though GLP-1 medicines treat a range of diseases, they may be best known for their effectiveness in diabetes and, in recent years, weight loss.

Assuming the oral GLP-1 space does reach the predicted $20 billion by 2030, a significant portion of that total — perhaps up to half or more — might be from sales for weight management, given the growing popularity of anti-obesity medicines and the advantages that oral ones would confer.

Eli Lilly’s setback

Eli Lilly had hoped it could cash in on that market thanks to orforglipron. Although the pill performed well in diabetes, it did not meet Wall Street expectations in the first of a pair of phase 3 studies in weight management. The trial enrolled patients who were obese or overweight, but did not have diabetes. Eli Lilly reported that over the 72-week study, orforglipron led to an average reduction of 12.4% in body weight at the highest dose.

In a similar 72-week study comparing Zepbound and Wegovy head-to-head, Zepbound led to an average weight loss of 20.2%, compared to Wegovy’s 13.7%. Oral and injectable medications don’t have the same mechanism of action. The latter are often more effective for various reasons, including the fact that they’re absorbed more quickly into the body.

Even so, some analysts hoped orforglipron would match the efficacy of subcutaneous GLP-1 medicines in weight management. Others, like those at the healthcare-focused investment management bank Leerink Partners, were hoping for an average weight loss of 14.4% from orforglipron.

Novo Nordisk could be a major winner

Eli Lilly’s biggest competitor in diabetes and weight loss is Novo Nordisk, so it makes sense that the latter’s share price jumped following Lilly’s recent setback. These developments open the door for Novo Nordisk to catch up to its competitors. The Denmark-based drugmaker had been falling behind due to clinical challenges of its own over the past year.

Novo Nordisk has recently initiated phase 3 studies for amycretin, an investigational weight loss medicine, in both subcutaneous and oral formulations. If amycretin proves more effective than orforglipron in phase 3 studies, Novo Nordisk could be one of the biggest winners of the oral GLP-1 space. Several other companies could benefit, too; Viking Therapeutics and Structure Therapeutics are two smaller biotechs also working on oral GLP-1s.

Which stock should you buy?

My view is that despite its recent setback, Eli Lilly remains a buy. Its financial results are excellent; its GLP-1 portfolio remains strong; and the company has blockbusters in other areas, such as oncology and immunology. Furthermore, Lilly has a robust pipeline, which it’s been expanding significantly through acquisitions and licensing agreements.

That said, Novo Nordisk’s shares are also attractive. The sell-off the company has experienced over the past year appears overdone, as it still holds a strong position in diabetes and weight management, and it boasts exciting candidates in other areas. These two companies both have the potential to deliver strong returns over the long term.