By Josh Nathan-Kazis

Through all the market madness of the past two years, there has been one truth universally acknowledged by the analysts who track healthcare stocks on Wall Street: that the market for the new, effective obesity drugs will be even bigger than anyone expects.

Even as investors got a bit wobbly and started to dump shares of Novo Nordisk, which makes the GLP-1 drug Wegovy, investment bank analysts held firm.

Shares of Eli Lilly have trailed the market, and Novo's American depositary receipt is down roughly half over the past year, but analysts kept raising their estimates for sales of both company's top weight-loss drugs. The FactSet consensus estimate for combined 2030 sales of Lilly's Zepbound and Novo's Wegovy is up 22.4% over the past year, and now sits at $45.4 billion.

For investors trying to understand the biggest story in healthcare, it created a puzzle. Why were the stocks underperforming if the growth outlook kept getting better?

This week, analysts at Goldman Sachs offered their answer: Upon reflection, the growth outlook for the overall obesity market is actually getting worse.

But the Goldman analysts, led by Asad Haider, think that is actually fine for Lilly, which will hold on to a huge chunk of market share, and Haider upgraded Lilly to Buy from Neutral on the same day he released his report.

The Goldman analysts cut their estimate for the total global weight-loss drug market in 2030 by 27%, to $95 billion. That's down from a $130 billion estimate they made in May 2024, which itself was up from an $100 billion estimate they set out in October 2023.

The Goldman report, released into the frenzy of the tariff insanity on Wednesday, marks a turning point in the long, torrid saga of the GLP-1 trade.

Analyst projections about the weight-loss market are hard to compare, but before this week, most tended to point upward. A report from TD Cowen analysts in February was typical: It estimated $139 billion in global GLP-1 sales in 2030, up from an estimate of $101 billion a year earlier.

"I think that investors have already been dialing back their assumptions on the [total addressable market]," Haider told Barron's. Now, the analysts are catching up.

Haider's theory is that the obesity market is headed away from shared dominance by Novo and Lilly's injectable GLP-1s, and toward a far more diverse market, with different patients seeking different types of drugs through different payment channels.

The big difference between this Goldman estimate and older estimates is that Haider and his colleagues now think that U.S. prices will fall much faster, though that will be balanced in part by bigger-than-expected uptake of cheaper oral weight-loss medicines outside of the U.S.

"This market is fragmenting," Haider says. "It's fragmenting around types of therapy. It's fragmenting around payer dynamics, channels, global opportunities, orals. We just felt that part wasn't understood."

The pullback in Novo and Lilly shares over the past 12 months came amid supply troubles that allowed for the blossoming of an enormous market in legal copycat GLP-1 drugs manufactured by compounding pharmacies and sold through telehealth storefronts like Hims & Hers.

The problems posed by the compounders were particularly acute for Novo, which bore the brunt of the telehealth competition, and which at the same time had some disappointing data on its follow-up weight-loss drug.

The compounding troubles fed into a narrative that the obesity trade was turning out to be kind of messy. Haider's report takes that market vibe and gives it analytical depth.

Haider says that the biggest difference in the new estimate is that he now expects prices to drop 7% a year in the U.S., up from 2% a year. "That's a pretty significant cut," he says. Average net prices have already dropped in the U.S. for branded GLP-1s, Haider says, to around $770 a month, down from $926 a month in 2022.

Haider says the steeper price erosion will come from Novo and Lilly being forced to pay higher rebates to the pharmacy-benefit managers to get their drugs covered, and from the growth of the two companies' direct-to-consumer sales efforts, which they launched in the face of compounder competition.

Those direct-to-consumer options, which sell Zepbound and Wegovy for around $500, offer a cash pay alternative for patients whose insurance won't cover the drugs. Haider writes that the DTC prices are lower than the average net prices, which suggests the DTC options are less profitable for the companies. "The impact of these strategies long term on net price is yet to be seen, but could present some risks to outer year estimates," he writes.

Outside of the U.S., Haider writes that there's a major opportunity for high-volume sales. Prices will be lower, but volumes could be large.

Despite all this, Haider is still bullish on Lilly.

Today, he says the obesity market is $28 billion, split between Novo and Lilly, with Novo having a bit more than 51% share. He says Lilly will keep about half the market as it grows.

"They are so well positioned, with a fortress around manufacturing, with rebate walls, it has first mover advantage and an early mover advantage" in coming disruptive therapies," he says. "When we modeled this out, it was hard for us to come up with a view where we see competitors leapfrogging them."

Haider has a target price of $888 for Lilly. It's now trading around $725.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 11, 2025 01:00 ET (05:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.