HomeBusinessEli Lilly, Novo Euphoria risks disappointing investors, Goldman says

Eli Lilly, Novo Euphoria risks disappointing investors, Goldman says

(Bloomberg) — The weight-loss frenzy that Eli Lilly & Co. and Novo Nordisk A/S to record highs raises the stakes for investors, according to Goldman Sachs Group Inc. analysts.

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“Expectations are high, which increases the risk of potentially disappointing,” said analyst Chris Shibutani, who said investors have bought into the demand story for obesity drugs and have priced in “a significant amount of optimism.”

Shibutani, who maintains a hold rating on Lilly, said if the drugmakers were unable to meet rising demand for the drugs, it could dent enthusiasm for the stock. A supply shortage has dogged popular drugs. He added that competition from other developers and the failure of new drugs in the pipeline could also “lead to some cuts.”

The rapid introduction of drugs including Mounjaro and Ozempic has made Lilly the largest healthcare company in the world by market value, and Novo has overtaken its peers as the most valuable listed company in Europe. Goldman expects the market for such drugs to reach $100 billion by 2030.

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In the wake of the rally, risks for drugmakers are now fairly balanced, strategists led by Allison Nathan say in the note examining the reach of the drugs known as GLP-1s.

“There remains room for further important positive developments to send these shares even higher,” the bank said.

The most critical catalyst could be a decision to let Medicare cover the weight-loss drugs.

Novo’s Wegovy is currently covered by Medicare drug programs for heart disease. Given current prices, experts don’t expect the government to expand coverage to weight loss anytime soon. Shibutani estimates the odds of Medicare covering obesity drugs at 50-50.

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