2 Top Pharma Stocks That Just Keep Getting Better and Better

Both of these businesses are finding traction in a pair of major markets.

It’s a truism in the stock market that winners tend to keep winning. For pharmaceutical companies, making good on that axiom requires a lot of hard work to develop new medicines, and to find ways of adding to established markets that are addressable by their existing drug portfolios.

But the best competitors do it anyway, again and again. So let’s examine a pair of today’s leading drug businesses and see how they’re building up their leading products to make them (and investors) even more cash.

1. Eli Lilly

Thanks to its smash-hit drugs for type 2 diabetes and obesity, Mounjaro and Zepbound, Eli Lilly (LLY -0.25%) is on a tear. In the first quarter, its revenue jumped by 26% to nearly $8.8 billion thanks to white-hot demand for those two medicines in particular. And the sales potential for both drugs just got even better, again, which supports the core investing thesis for this stock.

In phase 3 clinical trial results published on April 17, patients with obesity and obstructive sleep apnea who were administered tirzepatide (the active pharmaceutical ingredient shared by Mounjaro and Zepbound) experienced a 63% reduction in their number of airway obstructions per hour of sleep — roughly 30 fewer, in fact. Patients taking a placebo only experienced a 6.4% reduction in the number of obstructions per hour, so tirzepatide was highly effective. And the side-effect profile appears to be tolerable.

Per Fortune Business Insights, the market for medical devices that treat sleep apnea will be as large as $13.1 billion by 2028. Even though Eli Lilly isn’t a medical device company, it now has a credible shot at getting an expanded indication for Mounjauro or Zepbound that will enable it to capture a slice of that market, and potentially quite a large one. Standard interventions for obstructive sleep apnea include CPAP machines and other wearable devices, which many patients may find to be less comfortable than getting a weekly injection of tirzepatide.

At the moment it looks like the sky’s the limit for Eli Lilly, and the fact that it could soon enter a large new market is a green flag to buy the stock.

2. Novo Nordisk

As one of Eli Lilly’s main competitors in the cardiometabolic disease space, Novo Nordisk (NVO 0.20%) has roughly the same setup to outperform.

Thanks to its molecule semaglutide — which consumers know as Ozempic (for type 2 diabetes) and Wegovy (for obesity) — the company has the opportunity to continue to expand into a gaggle of new markets. The path to reaching those markets will be paved by clinical trial results indicating that semaglutide can be useful for other disease areas, including some that are quite surprising, like potentially Alzheimer’s.

One example of a new niche that’s drawing closer to reality is chronic kidney disease (CKD). Per a late-stage clinical trial, semaglutide helps people with obesity and CKD prevent the progression of kidney disease and reduce their risk of kidney or cardiovascular-related death.

Rather than focus on the quantitative changes in medical metrics that the drug caused, it’s far more important to recognize that Novo Nordisk halted the trial ahead of schedule because of how effective the intervention was. Plus, the trial hit all of its predefined endpoints early, so declaring success wasn’t premature in any way.

The company now plans to submit its materials to regulators in the U.S. to get an expanded approval sometime in 2024. Assuming things go as planned, it’ll start to realize additional revenue relatively soon.

Novo Nordisk’s trailing-12-month revenue totals $35.5 billion, up 71% from three years ago. According to Research and Markets, the market size for CKD medicines could become as large as $88.3 billion by 2028. While the business will likely only be able to capture the share of that market which is devoted to CKD drugs intended for people with obesity, that could change with time and perhaps a few more studies.

Until then, this latest research will be followed by the results from parallel efforts in other disease niches. Some of those efforts may fail, but it won’t be all of them. And that means more sales of Ozempic for Novo Nordisk are coming up, which is yet another reason to consider buying the stock.

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