Novo Nordisk Crashes 47% From Peak as Obesity Drug Empire Faces Existential Threats From Eli Lilly, Compounders, and Its Own Guidance

The divergence between Novo Nordisk and Eli Lilly has become the defining narrative of the GLP-1 obesity drug market in 2026. Both companies sell blockbuster injectable weight loss treatments — Novo's Wegovy and Lilly's Zepbound — yet their trajectories could not be more different.

Eli Lilly's tirzepatide-based drugs Mounjaro (for type 2 diabetes) and Zepbound (for obesity) generated combined sales of $36.5 billion in 2025, comprising roughly 56% of Lilly's total revenues. In Q4 2025 alone, Lilly posted $19.3 billion in revenue with an operating income of $8.8 billion. The company guided for 25% sales growth in 2026, buoyed by expanding Medicare coverage expected to come online by July and the upcoming approval of its own oral GLP-1 pill, orforglipron.

Novo's semaglutide franchise — Ozempic and Wegovy — generated DKK 206.2 billion (approximately $28 billion) in 2025, but momentum has stalled. Lilly now commands roughly 60% of the branded GLP-1 market globally, while Novo holds about 39%. Perhaps most damaging is the preference gap: Novo estimates that 7 to 8 out of 10 new U.S. patients choose Lilly's drugs over its own. Zepbound has demonstrated more pronounced weight loss than standard-dose Wegovy, and that efficacy advantage has proven decisive in the battle for prescriptions.

The valuation gap tells the story in stark financial terms. Lilly trades at 45.3x earnings with a $932 billion market cap, reflecting the market's confidence in its growth trajectory. Novo trades at just 13.5x earnings — a fraction of Lilly's multiple — suggesting investors have priced in not just slower growth but potential contraction. For a company that was once valued at a premium to the broader pharma sector, the compression to a low-teens P/E signals a fundamental reassessment of Novo's competitive position.

At the center of Novo's troubles is a legal and regulatory battle against compounding pharmacies that have been mass-producing cheaper knockoffs of its semaglutide drugs. The company estimates that 1.5 million Americans are currently taking compounded versions of its weight loss treatments, sold by telehealth providers like Hims & Hers, wellness clinics, and independent compounding pharmacies at a fraction of the branded price.

The compounding issue exploded into public view when Hims & Hers announced plans to sell a compounded version of Novo's newly launched Wegovy pill for roughly $100 less than the branded version — just five weeks after the pill's launch. Novo's response was swift and aggressive: the company sued Hims on Monday over compounded versions of both injectable and oral semaglutide, bringing its total lawsuit count against compounders to more than 130. Hims quickly backed down from its pill plans, but the damage to its stock was catastrophic — shares of HIMS have cratered 77% from their 52-week high of $72.98 to just $16.30.

The FDA has sided emphatically with Novo, announcing a broader crackdown on compounding and referring Hims to the Department of Justice over potential violations. As Rothschild & Co Redburn analyst Simon Baker told CNBC, the move on the pill was seen as "the last straw" — regulators realized that allowing knockoff versions of brand-new drugs to launch within weeks would "destroy the industry." CEO Mike Doustdar called the government's public response "a very strong signal" and welcomed the regulatory support.

But the compounding fight cuts both ways for Novo. A curious asymmetry exists in the market: while Lilly dominates branded prescriptions with a 60% share, the compounded market is overwhelmingly tilted toward Novo's semaglutide molecule. This suggests that many price-sensitive patients who would choose Novo's drug on efficacy grounds are being diverted to cheaper compounded alternatives instead. If Novo can shut down the compounding channel, it could theoretically recapture a meaningful portion of those 1.5 million patients — but that outcome remains uncertain and will take time to materialize.

Amid the gloom, Novo does have one undeniable asset: the first-ever GLP-1 pill approved for obesity. Launched at the beginning of January, oral Wegovy has already attracted approximately 246,000 patients in its first six weeks, outpacing the early rollouts of every existing GLP-1 injection. For patients who dread weekly injections, the pill represents a potentially transformative convenience upgrade.

CEO Doustdar is banking heavily on the pill's competitive advantages. In clinical trials, oral Wegovy demonstrated 16.6% weight loss, compared with 12.4% for Lilly's oral candidate orforglipron — a 40% efficacy gap that Doustdar called "a very main selling point." Lilly's pill is currently under FDA review and expected to win approval during Q2 2026, giving Novo a critical first-mover window of at least several months.

The company is also pursuing a higher-dose 7.2 milligram version of Wegovy that showed approximately 21% weight loss in the STEP UP clinical trial — putting it "very much on par" with the highest dose of Lilly's Zepbound, according to Doustdar. If approved, this higher dose could help neutralize Zepbound's key advantage in efficacy, which has been the primary driver of Lilly's market share gains.

However, the pill launch alone may not be enough to reverse Novo's fortunes. Investors who initially cheered the oral formulation as a transformative growth driver have grown skeptical that it can offset the broader headwinds of pricing pressure, competition, and slowing U.S. prescription trends. The stock's continued decline even after the pill's strong early adoption numbers speaks to a deeper crisis of confidence.

Perhaps the most significant medium-term catalyst for Novo is the impending expansion of Medicare coverage to include obesity treatments for the first time. Under the landmark "most-favored-nation" drug pricing deals struck between both Novo and Eli Lilly with President Trump in November 2025, Medicare is slated to begin covering GLP-1 obesity drugs later this year.

Doustdar told CNBC that approximately 15 million Medicare beneficiaries fall within the target demographic for Novo's products, out of roughly 67 million total Medicare enrollees. Health experts estimate that 20 to 30 million Medicare patients suffer from obesity and related conditions, suggesting the total addressable market could be even larger. The coverage expansion could also spur more private insurers to follow suit, creating a ripple effect across the commercial insurance market.

But Doustdar struck a notably cautious tone compared with Lilly's bullishness. While Lilly cited Medicare coverage as a key tailwind in its 2026 guidance and expects it to come online by July, Novo's CEO acknowledged that expecting rapid uptake would be "a bit naive," pointing to historically slow adoption rates even among patients with commercial insurance coverage. Novo is still negotiating the exact timing of coverage with the government.

The Medicare expansion comes with a catch: lower prices. The most-favored-nation deals required both companies to accept significant price concessions on their U.S. products. For Novo, which already faces declining realized prices under various access initiatives, the trade-off between volume and pricing is a critical calculation. The company will need substantially higher prescription volumes just to offset the pricing headwinds, let alone return to growth. This volume-over-price dynamic is central to Novo's deteriorating 2026 outlook and explains why adjusted sales could decline even as patient numbers reach record levels.

At 13.5x trailing earnings, Novo Nordisk is trading at its cheapest valuation in years — a level that would typically scream "buy" for a company with 81% gross margins, DKK 119 billion in annual operating cash flow, and a dominant position in one of healthcare's fastest-growing therapeutic areas. The company has also initiated a DKK 15 billion ($2 billion) share repurchase program, signaling management's belief that the stock is undervalued.

The bull case rests on several pillars: the Wegovy pill's strong early adoption, the coming Medicare expansion, the potential shutdown of the compounding channel, a higher-dose Wegovy that could match Zepbound's efficacy, and a deep pipeline of next-generation obesity and diabetes therapies. Full-year 2025 operating cash flow of DKK 119.1 billion demonstrates the underlying business remains a cash machine, even if free cash flow dipped to DKK 29 billion due to DKK 90.1 billion in capital expenditures as Novo scales manufacturing capacity.

The bear case is equally compelling. Eli Lilly's structural advantages — superior efficacy with current doses, a diversified pipeline, and aggressive manufacturing expansion including a new $6.5 billion Texas facility — suggest that Novo's market share losses may accelerate rather than stabilize. The 2026 guidance of 5-13% adjusted sales declines could prove optimistic if the compounding crackdown stalls or Lilly's oral drug launches successfully. Novo's own balance sheet shows rising debt, with total debt climbing to DKK 131 billion against DKK 194 billion in equity, and a current ratio below 0.80 that reflects aggressive financial management.

Analysts remain divided. Deutsche Bank's Emmanuel Papadakis lowered his price target following the guidance, noting that "enough has occurred in the past week to occupy a few volumes." BMO Capital Markets' Evan Seigerman suggested that success in the compounding fight could help Novo "turn things around for sales projections," but acknowledged the uncertainty. With analyst estimates projecting roughly DKK 75-80 billion in quarterly revenue through 2027 and EPS estimates in the $4.87-$5.79 range, the market appears to be pricing in a prolonged period of stagnation rather than recovery.