"Deceptive Advertising!" Claims Novo Nordisk in Explosive New GLP-1 Lawsuit Against Eli Lilly. Here's What That Means for Both Stocks.

The GLP-1 market has been hot for a long time, but things are even more heated behind the scenes. Danish healthcare company Novo Nordisk (NVO 0.46%) and massive U.S. drugmaker Eli Lilly (LLY +2.30%) have been battling for supremacy in the massive U.S. GLP-1 market.And as of Tuesday morning, the feud has officially landed in the courtroom, as Novo Nordisk announced it had filed a lawsuit against its rival in federal court.Novo, the maker of GLP-1s Ozempic and Wegovy, claims that Eli Lilly’s ads for its competing GLP-1 brands, Mounjaro and Zepbound, rely on “deceptive advertising” that has caused “widespread confusion” in the marketplace.The lawsuit demands that Lilly pull its “misleading comparative advertising across all platforms,” along with other demands.Here’s what else the lawsuit is alleging and how it’s likely to impact both stocks. Image source: Novo Nordisk. Bitter rivalsBoth Novo and Lilly are fighting tooth and nail to dominate the massive (and lucrative) U.S. GLP-1 market.Novo Nordisk – which specializes in diabetes care – released its GLP-1 semaglutide in the U.S. under the Ozempic brand name in 2018 as a diabetes treatment. When it proved effective for weight loss, Novo began selling it as a weight-loss treatment under the Wegovy brand in 2021.Meanwhile, Eli Lilly was developing a different GLP-1, tirzepatide, which it released as a type 2 diabetes treatment, Mounjaro, in 2022, and as a weight-loss treatment, Zepbound, in 2023.Both companies’ stocks soared between 2018 and 2024 as the blockbuster potential of these weight-loss drugs became apparent. But in December 2024, a head-to-head clinical trial dubbed “SURMOUNT-5” showed that Lilly’s Zepbound provided superior weight loss to Novo’s Wegovy. Since then, Lilly’s stock has risen 42.7% while Novo’s has dropped 53.8%. But the new lawsuit is putting that Surmount-5 head-to-head trial back in the spotlight.“A nationwide pattern of deceptive advertising”Among other issues, Novo is objecting to Lilly’s use of data from the 2024 SURMOUNT-5 trial in its current advertising.The SURMOUNT-5 trial found that patients taking a 10 mg or 15 mg dose of Zepbound lost an average of 20.2% of their body weight (about 50 pounds) after 72 weeks, while those taking a 1.7 mg or 2.4 mg dose of Wegovy only lost an average of 13.7% of their body weight (about 33 pounds) during the same time frame. The Wegovy doses were much smaller than the Zepbound doses because those were the maximum approved by the FDA at the time. But this March, the FDA approved a 7.2 mg dose of Wegovy: three times higher than the 2.4 mg dose studied in the SURMOUNT-5 trial. In clinical tests, this higher dose of Wegovy resulted in average weight loss of 19% (about 47 pounds) after 72 weeks: practically identical to Zepbound’s SURMOUNT-5 performance.Novo Nordisk calls this failure to account for the newer, higher dosage of Wegovy “a nationwide pattern of deceptive advertising which confuses consumers by using outdated studies.” Eli Lilly, for its part, released a statement that it stands “firmly behind our advertising” and that it believes a head-to-head clinical trial is the “gold standard for comparing medicines.” The SURMOUNT-5 trial is the only study to date that has directly compared Wegovy and Zepbound. Image source: The Motley Fool. What it means for investorsThe U.S. GLP-1 market is expected to reach $100 billion by 2030, and Novo Nordisk and Eli Lilly are fiercely battling for supremacy.Novo is asking the U.S. District Court for New Jersey – where it filed its suit – to issue a permanent injunction against the ads, order Lilly to issue corrective advertising, and award unspecified monetary damages. I’m not an attorney, and there are still plenty of unclear details here, so I can’t predict the outcome. But given that the head-to-head comparison in Lilly’s ads was accurate until March, the potential monetary impact is likely minimal, especially considering Lilly has brought in $10.4 billion in free cash flow over the last 12 months.Now, if the court rules that Lilly can no longer claim in future ads that Zepbound is more effective than Wegovy, that would be a win for Novo. With its huge resources, Eli Lilly would surely come up with an effective alternative ad campaign. But it might help Novo start to change the perception that Zepbound is the superior weight loss drug.On the whole, though, this is unlikely to have a material impact on either stock.