The market value of the "weight loss duo" has evaporated by over $600 billion from its peak, equivalent to losing one "Hermès" this year

The two major global weight loss drug manufacturers, Novo Nordisk and Eli Lilly, are facing a crisis of investor confidence, with a combined loss of $252 billion in market value this year, equivalent to the entire market value of the Hermès Group. Since last year's peak, this decline has been even more astonishing, totaling over $600 billion.

Investor enthusiasm for obesity treatment drugs is waning, amid concerns about the rise of generic drugs in the U.S. and disappointing results from next-generation drug trials. Danish company Novo Nordisk's stock has fallen 49% this year, evaporating $166 billion in market value, while American Eli Lilly has dropped 11%, losing $86 billion.

The policies of the Trump administration have further exacerbated market concerns. Both companies received a letter from Trump at the end of July, demanding a reduction in U.S. drug prices or face consequences. Analysts point out that the prospect of "most favored nation" pricing policies is causing investors to adopt a wait-and-see attitude toward the entire pharmaceutical industry.

Although the pharmaceutical industry has just gone through another good earnings season, the sector's current price-to-earnings ratio has fallen to its lowest level in over a decade. However, the collective buying behavior of insiders at Eli Lilly this month is seen as a vote of confidence against the excessive decline in stock prices, suggesting that market sentiment may soon shift.

The Weight Loss Drug Craze Cools Rapidly

What was once seen as a highlight of the pharmaceutical industry, the weight loss drug business is undergoing a sharp adjustment. Star products like Novo Nordisk's Wegovy and Ozempic, as well as Eli Lilly's Zepbound and Mounjaro, previously brought significant growth to both companies, but market expectations for these "obesity franchise businesses" are returning to rationality.

Evan Seigerman, an analyst at BMO Capital Markets, stated, "The obesity franchise business was supposed to save everyone, but the reality is that these are complex markets with ups and downs and risks."

Since its peak in June last year, Novo Nordisk has lost $367 billion in market value, a decline of more than two-thirds. The company replaced its CEO in May and continues to lose market share in competition with Eli Lilly. Norway's $2 trillion sovereign wealth fund revealed this week that its holdings in Novo Nordisk lost $1.2 billion in the first half of this year.

Eli Lilly's stock price fell to its lowest point since February 2024 this month, primarily due to disappointing trial results for its highly anticipated oral weight loss drug orforglipron. Since reaching an all-time high valuation last year, the company has dropped 29%, with a market value evaporation of $250 billion.

Policy Uncertainty Shadows the Industry

The Trump administration's tough stance on the pharmaceutical industry is becoming a major concern for investors. In addition to Novo Nordisk and Eli Lilly, 15 other pharmaceutical companies received price reduction demand letters at the end of July, indicating that the new government is pushing for aggressive trade and pricing policies.

Wider concerns about tariffs and price reductions have affected the entire pharmaceutical sector. The top ten pharmaceutical groups in the U.S. and Europe have collectively lost $128 billion in market value this year, with a total market value of $2.8 trillion as of last Friday afternoon, excluding exchange rate fluctuations.

Gareth Powell, manager of the Polar Capital healthcare fund, pointed out, "If you are a general investor, why would you invest here in the face of tariff and most favored nation policy resistance, rather than buying AI stocks?" Merck, Pfizer, and Roche all saw declines in their stock prices, while the gains of AbbVie, AstraZeneca, Novartis, Johnson & Johnson, and Amgen were far from offsetting the losses of Eli Lilly and Novo Nordisk.

Insider Confidence Signals

Despite facing challenges, some signs indicate that market sentiment may be bottoming out. After Eli Lilly released disappointing earnings, five of the company's directors and executives purchased shares, marking the first insider buying in three years.

CEO Dave Ricks purchased $1.1 million worth of stock on Tuesday, which is his largest purchase in over a decade with the company. VerityData, which tracks insider trading, reported this week that these purchases "send a compelling message that insiders believe the sell-off is excessive."

Powell believes that investors "throwing in the towel" on Eli Lilly this month could be a signal that sentiment is about to shift. Although the pharmaceutical sector is currently trading at its lowest price-to-earnings ratio in over a decade, this valuation level may lay the groundwork for a future rebound.

The challenges facing the pharmaceutical industry highlight that even the hottest medical innovations are susceptible to policy changes and fluctuations in market sentiment. For weight-loss drug manufacturers, who were once highly anticipated, rebuilding investor confidence will require substantial progress in product innovation and policy responses