Eli Lilly's GLP-1 Dominance Emerges as Novo Nordisk Falters, but Valuation Risks Loom

What happened

The first week of February 2026 saw the pharmaceutical sector's most famous partnership dissolve, with Eli Lilly's stock soaring as Novo Nordisk's stumbled, marking a clear divergence in the weight-loss drug race. DeepValue's master report confirms Lilly now controls the leading GLP-1/obesity franchise, driven by tirzepatide products that generated over half of 2025's $65.2 billion revenue. However, the report critically notes that Lilly's stock at ~$1,000 already prices in sustained high-teens growth, while net prices are falling faster than bullish narratives imply due to policy and payer pressures. Market sentiment treats Lilly as the entrenched winner, but filings reveal over 48% revenue concentration in tirzepatide and explicit warnings of sudden financial declines from pricing or safety shocks. This split highlights Lilly's competitive edge but underscores the precarious balance between volume growth and accelerating net price compression that investors must navigate.

Implication

The metabolic split reinforces Eli Lilly's GLP-1 leadership, but DeepValue's analysis shows the stock's premium valuation leaves no margin of safety amid high concentration and policy headwinds. Investors face significant downside if net price erosion accelerates, as evidenced by Novo Nordisk's 2026 reset and Lilly's own disclosures of lower realized prices offsetting volume growth. With a P/E of 48.88 and EV/EBITDA of 61.22, current levels embed optimistic assumptions that volume can outrun price compression, but crowded long positioning increases vulnerability to any execution misstep. Monitoring quarterly net pricing trends and regulatory milestones is crucial, as faster-than-guided rebate increases could weaken the thesis rapidly. Thus, maintaining a 'POTENTIAL SELL' stance with trims above $1,150 and re-assessment at lower prices aligns with the risk-reward skew toward downside.

Thesis delta

The split confirms Eli Lilly's superior market position in the GLP-1 space, reinforcing the bullish narrative of category leadership. However, this does not alter the core investment thesis, which remains skeptical due to extreme valuation, product concentration, and looming price pressures from policy actions. No material shift in the sell recommendation is warranted; instead, the news validates the need for caution amid demanding multiples and embedded risks.