These 3 factors could make Eli Lilly stock a better buy than Novo Nordisk right now

Eli Lilly (LLY 2.11%) and Novo Nordisk (NGO 1.19%) they are great colleagues in the pharmaceutical field. They are also each other’s biggest rivals, especially in the all-important weight loss drug market, where both are currently very successful.

At this point, there are several reasons to believe that Eli Lilly has the upper hand in this competitive clash. These reasons support buying its stock, assuming you don’t want to invest in both companies. Here are three things that give Lilly an edge.

1. Supply constraints holding back Lilly’s revenue growth are easing

It is well known that sales of new weight loss drugs drive earnings growth and stock price appreciation for both companies. Demand for these drugs, such as Lilly’s Zepbound and Novo Nordisk’s Wegovy, is so strong in the US that for months neither company has been able to produce enough to meet patient demand. In the second quarter alone, Zepbound brought in over $1.2 billion in revenue, making it a blockbuster drug.

Such a mismatch between supply and demand was supposed to be temporary. And with both players investing heavily in building new manufacturing facilities and inking contracts with contract manufacturing organizations (CMOs), it’s clear that management teams are keen to unlock pent-up demand as quickly as possible.

On that front, Lilly seems poised to move forward, even if its drug was approved for sale somewhat later.

As of its Q2 earnings report, Lilly’s chief executive said he believed that in the US, all doses of Zepbound would soon be removed from the official drug shortage list maintained by the Food and Drug Administration (FDA). This will open the door for doctors to start prescribing the treatment for new patients again, boosting the company’s market share and top line.

Novo Nordisk, on the other hand, still seems to be on the back foot. There are no firm timelines for when Wegovy will emerge from a state of scarcity, so it won’t be able to grow as quickly.

2. Lilly is moving forward with a key update to a core program

Wegovy and Zepbound are officially intended to treat obesity as well as some of its most common comorbidities.

Both pharmas do substantial additional research and development (R&D) work in the form of clinical trials that test their drugs to see if they might be useful in treating or mitigating those comorbidities — such as sleep apnea, cardiovascular risk, and heart failure . . If the company can convince regulators that its products are safe and useful for those conditions, each new indication is an expansion of the addressable market and thus future revenue.

Not all extended directions are created equal. Some may increase the addressable market only slightly; others, such as treating heart failure, involve the opportunity for significant growth.

In Q2, it appeared that Novo Nordisk’s bid to add heart failure to Wegovy’s list of approved indications was a slam dunk, as were several of its previous attempts for other indications. Instead, discussions with regulators revealed their concern about certain issues; in early August, Novo Nordisk withdrew its application from consideration and decided to try again early next year. It was quite unexpected – and Lilly won’t have that problem.

In fact, Lilly just completed its Phase 3 study for the indication and is continuing to submit its materials to regulators as quickly as possible. Even if the FDA takes a long time to review the package, there is no way Novo Nordisk will get approval for the indication before Lilly, assuming the latter does. Therefore, Lilly will likely gain access to that new segment sooner and subsequently grow more.

3. Lilly entered a new market first

Although Novo Nordisk is not focused on developing drugs for Alzheimer’s disease, it has aspirations to compete in the emerging market for drugs that treat the condition.

Late-stage clinical trials are currently investigating whether the molecule semaglutide, the active ingredient in Wegovy, could help. Choosing an additional indication for Alzheimer’s disease would, as previously discussed, increase the addressable market quite a bit; it would also give Novo Nordisk a favorable market position as there is little competition.

But Eli Lilly got there first. With the FDA approval in early July of Kisunla, its new Alzheimer’s drug developed specifically for this purpose, the business will now begin to grow sales. And Lilly’s therapy might even have some advantages over the biogenichis drug, Leqembi, the first drug regulators approved to treat the condition. If it proves more effective, its chances of making inroads quickly and gaining market share are pretty decent.

In conclusion, Lilly recently raised Novo Nordisk several times, and its shareholders will likely reap the benefits. I don’t think Novo Nordisk is a stock to sell right now, but if you’re looking to buy just one of the pair, Eli Lilly has a bit more momentum.