There is little debate over which Wall Street profit story is the biggest of the moment: artificial intelligence. For second-biggest, consider the case for GLP-1 drugs.

Industry leader Eli Lilly, which reports second-quarter results this coming Wednesday, recently passed Walmart, Verizon Communications, and the rest of Big Pharma in profit power. This year, it's expected to earn $31 billion, up 36%, and good for 14th place in the S&P 500 index. By 2030, that figure could double, which would put Lilly ahead of Bank of America and ExxonMobil Holdings, and within sight of JPMorgan Chase. All of the rest of the big earners are AI giants.

Medicine and computer chips aren't much alike, but in this case there are key parallels. These are capacity-constrained markets with immense pricing power and vast and growing demand. With AI, the better it gets, the more uses customers find for it. GLP-1s are about to get a lot better, too -- imagine burning more fat while resting, and preserving more muscle. There is also rising insurance coverage, new delivery methods, and an explosion of potential uses. Today, GLP-1s are primarily thought of as obesity shots. Tomorrow, they might look more like an everything pill.

Since GLP-1s control appetite, they work wonders for weight loss, so it's unsurprising that they have proved useful for other conditions related to weight and diet: sleep apnea, fatty liver, and heart disease. But did you know that they are also being studied for drug and alcohol addiction, kidney disease, Alzheimer's, Parkinson's, knee arthritis, psoriasis, asthma, ovarian cysts, and cancer risk reduction?

"The great thing with this medicine, or this class of medicines, is it does target multiple different pathways that seem to have broad-ranging positive benefits across our bodies," says Terence Flynn, head of U.S. pharma and biotech coverage at Morgan Stanley.

For now, the GLP-1 market is a duopoly. Denmark's Novo Nordisk was the early leader with semaglutide, sold as Ozempic for diabetes and Wegovy for obesity. Indiana-based Eli Lilly has taken the lead with its more effective tirzepatide, branded as Mounjaro for diabetes and Zepbound for obesity. Sales estimates have multiplied. In 2022, when Barron's wrote about Lilly's entrance into the market, J.P. Morgan predicted that GLP-1 sales would reach $34 billion by 2031, a figure that now looks quaint.

This year, Morgan Stanley raised its 2035 GLP-1 sales prediction from $150 billion to $190 billion from diabetes and obesity alone. That would mean 30% penetration by then among obese Americans, up from 6% last year, and about 10% penetration outside the U.S. Nothing in history comes close. Pfizer's Covid-19 vaccine peaked near $40 billion in 2022, and a class of cancer drugs led by Merck's Keytruda does about $50 billion a year.

Surging Growth

Two new factors are adding to growth. For more than two decades, federal law has forbidden Medicare, the federal health plan for seniors, from paying for drugs intended solely for weight loss. That changed on July 1 with a temporary program with $50 copays for a month's supply, to be replaced by a permanent program after 2027. More than two-thirds of Medicare beneficiaries are overweight or obese. The rule change will raise costs in the short run, but advocates say it will pay for itself over time by reducing costly health complications.

Beyond Medicare, workplace coverage for obesity meds is on the rise, too, from 44% of employers in 2024 to an estimated 60% this year and 65% next year. In one consumer survey, patients with and without coverage reported paying an average out-of-pocket cost of $119 a month, down from $172 last year and $196 in 2024.

Pills are another plus for growth. Branded GLP-s have come in autoinjector pens or single-dose vials, but in January Novo launched a Wegovy pill, and Lilly followed in April with a pill called Foundayo. This promises to expand sales to the needle-averse and the cost-sensitive, as well as to overseas markets where refrigerating injectables isn't feasible.

With pills, the competition is close. Lilly's edge in injectables comes from the fact that tirzepatide is what's called a dual-agonist drug targeting receptors for two hormones -- glucagon-like peptide 1, or GLP-1, and glucose-dependent insulinotropic polypeptide, or GIP. Novo's semaglutide targets only GLP-1. Think of these receptors as locks, and natural hormones as keys, with obesity drugs serving as duplicate keys that can fit the same locks to, say, tell the brain to stop craving food. With pills, Lilly's effectiveness advantage is erased, because both its pill and Novo's work on a single receptor. In fact, the Novo pill has achieved slightly more weight loss in trials.

But Lilly's pill wins on flexibility. It's a small, synthesized molecule with high stability, which gives it a long shelf life and means it can be taken at any time of day, with or without food. The Novo pill, on the other hand, is a peptide, or chain of amino acids, which makes it finickier about storage, and means it must be taken immediately upon waking, with no more than several ounces of water, followed by a 30-minute wait before drinking coffee or eating. The differences could be important for overseas sales where shelf life matters.

While Lilly controls around 60% of the injectables market, Novo has an early 85% share in pills, although sales there are only beginning to ramp up. Pills are expected to make up a quarter of the market by 2030, and so far, they don't seem to excessively cannibalize sales of injectables. More than three-quarters of Wegovy pill users say they are new to GLP-1s, not switching from injectables.

Here Come Generics

Patent cliffs appear unlikely to spoil the profit party, especially for Lilly. It has until 2036 before key patents expire in the U.S., compared with 2031 for Novo. Both companies have amassed a thicket of patents on specific formulations and injector designs than run past 2040. One investor concern is that a generic form of Novo's semaglutide (Ozempic/Wegovy) five years from now could be cheap enough to lure patients off Lilly's tirzepatide (Mounjaro/Zepbound). But this might underestimate the massive manufacturing investments that Lilly and Novo have made.

Investment bank UBS analyzed production trends in markets like India, where semaglutide lost its primary patent protection early this year. One generic supplier there, Dr. Reddy's Laboratories, recently lowered its guidance on autoinjector pen delivery from 12 million a year to six to seven million a year due to impurities and other setbacks. UBS reckons that the world's generic ecosystem will be able to support only 25% to 30% of GLP-1 demand by 2030.

Even after generics launch in the U.S., many patients will be willing to pay premium prices for the best performance. Lilly's performance lead is about to grow. Retatrutide, a drug the company is testing, is nicknamed triple-G or 3G because it works on the same GLP-1 and GIP receptors as tirzepatide -- plus a third receptor for the hormone glucagon. In a key trial, patients on the maximum dose of retatrutide lost an average of 28% of their body weight, or 70 pounds, after 80 weeks. That compares with separate trials showing 21% body weight loss after 72 weeks for Zepbound and 15% after 68 weeks for Wegovy.

Basically, Novo's Wegovy suppresses appetite and slows stomach emptying, and Lilly's Zepbound adds to those effects improved fat breakdown for greater weight loss. Retatrutide is believed to add an increased baseline energy expenditure, so that patients burn more calories while resting. The weight loss achieved rivals that of bariatric surgery. What's more, retatrutide might be effective for a higher percentage of patients than other drugs, and because it's so powerful, it can be taken at low doses by patients who are sensitive to side effects. If approved by the Food and Drug Administration, retatrutide could launch in the U.S. as soon as late next year.

Side effects of GLP-1 drugs can include nausea and fatigue. Some patients consume too little protein and skip exercise, leading to muscle loss along with fat loss. Help might be on the way. Lilly is studying a drug called eloralintide, which mimics a hormone called amylin that is produced in the pancreas, whereas hormones targeted by the existing drugs are produced in the gut. Eloralintide appears to be able to signal fullness to the brain without the same stomach-slowing of GLP-1s, and to tell the body to burn fat while sparing muscle. Compared with retatrutide, eloralintide is at an earlier stage of development. Results in a Phase 2 trial showed weight loss at 48 week that exceeded that of Wegovy and approached that of Zepbound, with a higher ratio of fat loss to muscle loss.

Because eloralintide works on a different neural pathway than GLP-1 drugs, Lilly is studying it with tirzepatide to see if a lower-dose combo drug can produce strong fat loss with limited side effects. If it's successful, the soonest that drug would come to market is probably 2028 or 2029. Novo, meanwhile, has completed Phase 3 trials of its own amylin combo drug, called CagriSema, which appears to achieve weight loss similar to that of Zepbound. Novo's new drug could be first to market, perhaps within a year, but Lilly's coming drugs work on more pathways, so Lilly appears likely to win again on performance.

Sizing Up the Stocks

Stock investors eyeing the GLP-1 market leaders face a stark choice. Lilly shares have multiplied five times in price over the past five years. Novo's American depositary receipts have lagged well behind the S&P 500 index over that same stretch, gaining just 11%. That leaves Novo at 15.6 times this year's earnings forecast, compared with 34.8 times for Lilly. Wall Street overwhelmingly prefers Lilly, which is projected to double its earnings per share over five years starting from this year, versus cumulative 29% growth seen for Novo over that period. The Novo ADR comes with a bigger dividend yield: 3.5%, versus a fraction of 1% for Lilly.