Why Roche Stock Just Popped, but Eli Lilly and Novo Nordisk Dropped

Shares of Swiss pharmaceuticals company Roche Holding (OTC: RHHBY) soared 7% through 11:55 a.m. ET Wednesday on positive data from phase 1 clinical trials of its new weight loss drug CT-996.

But good news for Roche is bad news for the companies that now seem to have the weight-loss drug market to themselves. Shares of Eli Lilly (NYSE: LLY) were down 2.8% today, and Novo Nordisk (NYSE: NVO) lost 4%.

A simpler dosage method

This morning, Roche announced results of its new GLP-1 drug trial showing patients losing an average of 7.3% of their body weight after four weeks of treatment, which it calls a "clinically meaningful weight loss." Even better for patients, the drug comes in the form of a pill taken once daily.

This isn't great news for Lilly and Novo Nordisk, both of which have blockbuster GLP-1 drugs on the market -- Zepbound and Mounjaro for Lilly, and Ozempic and Wegovy for Novo Nordisk. Some patients are obviously going to prefer a weight loss drug in pill form, so Roche's CT-996 poses a clear and present danger to the other two companies' future profits.

Is Roche stock a buy?

Roche's GLP-1 drug is still at a very early stage in its development. And its two main competitors are working on putting their own weight loss drugs in pill form, too, which will mitigate the risk to their profits. Even so, adding Roche to the mix means profits in this sector will get divvied up among more players, probably depressing profit margins for all involved.

The biggest risk for Lilly and Novo Nordisk investors, though, is in competition on the stock market. Roche stock at 19.5 times earnings is going to look a lot more attractive to investors focused on value ( and growth ) than Novo Nordisk at 47 times earnings or Eli Lilly at 135 times earnings.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Roche Ag. The Motley Fool has a disclosure policy .