These 3 factors could make Eli Lilly stock a better buy than Novo Nordisk right now

Eli Lilly (LLY 2.11%) And New Nordisk (NVO 1.19%) are major pharmaceutical competitors. They are also each other’s biggest rivals, especially in the all-important market for weight-loss drugs, where they are both currently very successful.

There are a few reasons to believe Eli Lilly has the upper hand in this competitive clash right now. Those reasons support buying its stock, assuming you don’t want to invest in both companies. Here are three things that give Lilly the edge.

1. Supply constraints that are holding back Lilly’s revenue growth are easing

Sales of new weight-loss drugs are known to drive earnings growth and stock price increases for both companies. Demand for these drugs, such as Lilly’s Zepbound and Novo Nordisk’s Wegovy, is so high in the U.S. that neither company has been able to produce enough to meet patient demand for months. In the second quarter alone, Zepbound brought in more than $1.2 billion in revenue, making it a blockbuster drug.

Such a mismatch between supply and demand would be temporary. And with both players investing heavily in building new production facilities and striking deals with contract manufacturing organizations (CMOs), it’s clear that management teams are eager to unlock the trapped demand as quickly as possible.

In this regard, Lilly appears to have an advantage, even though the drug was not approved for sale until somewhat later.

In the Q2 earnings report, Lilly’s CEO said he believes all doses of Zepbound will soon be removed from the Food and Drug Administration’s (FDA) official drug shortage list in the U.S. That will open the door for doctors to start prescribing the treatment to new patients again, boosting the company’s market share and revenue.

Novo Nordisk, on the other hand, still seems to be on the back foot. There are no set timelines for when Wegovy will emerge from its scarcity state, so it won’t be able to grow as quickly.

2. Lilly continues a major upgrade of a core program

Wegovy and Zepbound are officially intended for the treatment of obesity and some of the most common comorbidities.

Both drugmakers are conducting substantial additional research and development (R&D) in the form of clinical trials to test their drugs to see if they might be useful in treating or alleviating those comorbidities — such as sleep apnea, cardiovascular risk and heart failure. If the company can convince regulators that its products are safe and useful for those conditions, each new indication expands the addressable market, and therefore future revenues.

Not all broad indications are created equal. Some may increase the addressable market by only a fraction; others, such as the treatment of heart failure, imply the potential for significant growth.

In Q2, it looked like Novo Nordisk’s bid to add heart failure to Wegovy’s list of approved indications was a slam dunk, like several previous attempts for other indications. Instead, discussions with regulators revealed concerns about certain issues; in early August, Novo Nordisk withdrew its application and decided to try again early next year. That was somewhat unexpected — and Lilly won’t have that problem.

Lilly has just completed its Phase 3 study for the indication and will be sending its materials to regulators as soon as possible. Even if the FDA takes ample time to review the package, there is no way Novo Nordisk can get the indication approved before Lilly, assuming the latter does. Therefore, Lilly will likely get access to that new segment earlier and grow more.

3. Lilly was the first to enter a new market

Although Novo Nordisk is not focused on developing drugs for Alzheimer’s disease, it does have ambitions to compete in the emerging market for drugs to treat this condition.

It is currently investigating in late-stage clinical trials whether the molecule semaglutide, the active ingredient in Wegovy, could be useful. Picking up an additional indication in Alzheimer’s would, as discussed earlier, significantly increase the addressable market; it would also give Novo Nordisk a favorable position in the market because there is little competition.

But Eli Lilly was there first. With the FDA’s approval in early July of Kisunla, the new Alzheimer’s drug developed specifically for that purpose, the company is now set to start generating revenue. And Lilly’s therapy may even have some advantages over Biogenic‘s drug, Leqembi, the first drug regulators have approved to treat the condition. If it proves more effective, the chances of it quickly gaining traction and market share are quite high.

In short, Lilly has outperformed Novo Nordisk a few times recently, and shareholders are likely to reap the rewards. I don’t think Novo Nordisk is a stock to sell right now, but if you’re only looking to buy one of the two, Eli Lilly has a bit more momentum.