(Bloomberg) -- Eli Lilly & Co. and Novo Nordisk A/S have had their years-long stock momentum halted in recent weeks, putting extra importance on this week’s earnings from the obesity drugmakers.
The share-price decline since mid-July has shaved billions of dollars off the market value of the Zepbound and Wegovy makers, trimming their year-to-date outperformance of sector peers. And after recent outlook upgrades from Pfizer Inc., Roche Holding AG and AstraZeneca Plc, the pressure is on for them to follow suit.
“‘Will they or won’t they raise guidance?’ is the primary question investors are asking going into Novo’s results,” said Barclays Plc analyst Emily Field, who sees scope for the Danish firm to lift its sales forecast. Her message to investors in both companies is, “Keep calm and carry on.”
Analysts estimate Novo’s Wegovy and its sister drug Ozempic — a diabetes treatment that shot to fame for its popularity among Hollywood stars looking to stay trim — will have combined sales of more than $27 billion this year, according to data compiled by Bloomberg. Meanwhile, Lilly’s Zepbound and the diabetes treatment Mounjaro are projected to generate more than $15 billion in aggregate sales in 2024.
The blockbuster obesity treatments have cemented Novo’s position as Europe’s most valuable listed company, and made Lilly the world’s biggest health-care company by market value. But the results come at a time when investors are seeking blowout results and guidance upgrades, especially as broader economic data raise worries about a recession.
While Lilly and Novo shares have fallen this month along with much of the market, they still trade at a significant price premium to the rest of the pharma sector. Yet, for many investors and analysts, the valuations seem justified because of the weight-loss drugs’ potential to ease other risks, including heart disease.
“Obesity is increasing the risk of developing other diseases,” said Gregoire Biollaz, senior investment manager at Pictet Asset Management. “There are a lot of additional disorders that can be prevented or have a milder impact, if obesity is addressed first.”
Investors will also seek guidance from the companies on the supply outlook for the drugs and the impact of any additional supply on sales. While the medications have been dogged by shortages, the US Food and Drug Administration said on Friday that all doses of Lilly’s Mounjaro and Zepbound were now available.
Another issue that’s keeping shareholders on tenterhooks is the drug pipeline, particularly as rival weight-loss drug developers race to enter the obesity market, which Goldman Sachs Group Inc. predicts could reach $130 billion by 2030.
Last month’s share-price setback for Lilly and Novo was driven in part by encouraging updates issued by Viking Therapeutics Inc. and Roche on their experimental treatments. Viking shares have surged this year, alongside Danish mid-cap Zealand Pharma A/S, which is testing a next-generation weight-loss compound.
Still, the popularity of the blockbuster obesity drugs is unlikely to abate in the short term. WW International Inc. — better known as WeightWatchers — last week announced job cuts as prescription weight-loss treatments erode demand for the company’s trademark diet plans. Its shares have shed about 90% year-to-date.
“I do expect a big quarter out of Wegovy and Zepbound,” said Jared Holz, healthcare equity strategist at Mizuho. “The question will be whether beats are good enough.”
--With assistance from Naomi Kresge.
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