Novo Nordisk (NOVOb.CO) and Eli Lilly (LLY.N) both expect juggernaut sales for their diabetes and weight-loss drugs to extend into coming years - limited only by their availability.
The two companies have been the primary beneficiaries of the global boom in obesity drugs, ballooning their market values and reshaping expectations not just in the healthcare industry, but also for sellers of sugary snacks, nutritional aids and packaged foods.
Sales of Wegovy and Ozempic for Novo and Lilly's Mounjaro surpassed expectations in the most recent quarter reported on Thursday, and both companies flagged their inability to manufacture enough supply to keep up with skyrocketing demand.
That squeeze could worsen once Lilly's Mounjaro, currently only approved for type 2 diabetes but being increasingly used "off-label" for weight loss, wins U.S. approval to treat obesity, likely by the end of the year.
Danish drugmaker Novo Nordisk, which overtook LVMH (LVMH.PA) as Europe's most valuable listed company this year, posted record operating profit for the third quarter, with Wegovy sales reaching $1.36 billion, up 28% from the previous quarter.
"At this point, the market is supply driven and every vial of (these weight-loss drugs) is getting used," said BMO analyst Evan Seigerman.
Novo expects double-digit sales growth in 2024 for Wegovy and Ozempic, which have the same active ingredient, semaglutide.
Indianapolis-based Lilly, now the world's most valuable healthcare company worth $526 billion, reported Mounjaro sales of $1.41 billion, surpassing $1 billion in a quarter for the first time. It aims to double last year's supply capacity by the end of 2023.
"With all the investments we're making and the production plans, the expected demand for (Mounjaro) will be quite significant. So we can be in a tight situation for some time," said Anat Ashkenazi, Lilly's chief financial officer, in an interview.
The success of these drugs and the publicity around them has driven a buying frenzy in both Novo and Lilly shares, which have risen 47% and 52%, respectively, in 2023.
Coming into Thursday, both companies sported price-to-earnings ratios that far surpass their peers. Novo's P/E is now at 46.5, while Lilly's is at a lofty 77. Most major drugmakers are between 10 and 20, according to LSEG data.
Shares of Novo rose 3% on Thursday while Lilly was up 4%.
The "number one question on investor’s minds is when will Wegovy supply growth resume? When will they open the gates to allow new patients to start?" said Nicholas Anderson, a portfolio manager at Thornburg Investment Management, which holds Novo Nordisk shares.
The success of the drugs has prompted investors to sell shares of healthcare companies that have profited from the obesity epidemic, because they treat diabetes, sleep apnea and other conditions that are exacerbated by excess weight. Several food and packaging companies have also said the drugs could have an effect on demand.
Johnson & Johnson (JNJ.N) last month reported that sales of its devices used for bariatric surgery took a hit as many obese patients turned to the weight-loss drugs instead.
The iShares Medical Devices exchange-traded fund has lost 12% so far this year, while the Invesco Food and Beverage ETF is down 8.3%.
In early October, Walmart (WMT.N), the largest U.S. retailer, said the success of weight-loss drugs was driving a slight pullback in food consumption.
Analysts have cautioned that food companies could be hit in coming months as drugs like Wegovy and Mounjaro become more readily available.
