New weight-loss drugs like Ozempic are making waves in the pharmaceutical world, and shares of their manufacturers are soaring.

The two names synonymous with the trend are Novo Nordisk (NYSE: NVO), maker of Ozempic and Wegovy, and Eli Lilly (NYSE: LLY), which produces Mounjaro and Zepbound. Morningstar currently rates both stocks as overvalued, but they’ve seen massive gains over the past year regardless. Novo Nordisk is up more than 82%, while Eli Lilly is up more than 97%.

As these drugs—known as GLP-1s, initially developed to treat diabetes—continue to be refined and the stocks keep climbing, some strategists say it will be nearly impossible for competitors to gain a meaningful advantage.

“We expect that Novo Nordisk and Eli Lilly will retain the vast majority of the market for as far as you can see—probably 80% to 90-plus%,” said Fayez Sarofim & Co. chief investment officer Gentry Lee at a panel during the 2024 Morningstar Investment Conference.

An enduring duopoly

The two companies “have pumped billions of dollars into research and development, capital investment, and manufacturing,” Lee said. They’ve also conducted scientific studies that allow them to get reimbursement from insurance companies, which makes their market dominance even more durable. “Once you’ve done those [studies], doctors trust you, you have a brand name in the market, you have a sales force out there representing those drugs,” Lee added.

Together, these factors mean competing companies will find it “exceptionally difficult to break into the market in a meaningful way,” he continued. “Our expectation would be that the duopoly will remain intact for a long, long period.”

That’s not to mention the potential for a much larger market in years ahead. Lee pointed out that GLP-1 drug patents will begin expiring in the 2030s, after which more affordable versions will become available to more patients. Of course, expired patents also open the doors to competing manufacturers.

An evolving market for obesity drugs

As demand grows for GLP-1 medications, manufacturers are racing to develop better ones and scale up production. “We are in stage one,” said Debra Netschert, a portfolio manager for healthcare strategies at Jennison Associates. “This market is going to look totally different in 10 years.”

That’s another headwind for competitors. Netschert pointed out that drugmakers (including Lily and Novo) are already developing new iterations of GLP-1 drugs and planning for the years ahead. “If [a competitor comes out] with a drug in 2030 that’s beating Mounjaro and Zepbound today, that’s not really relevant, because Lily could have their first oral data at the beginning of 2025.” Not to mention the additional data from other manufacturers coming down the pike.

Of course, no one has a crystal ball for this market, and today’s top players aren’t immune to future competition, especially given how rapidly weight loss drugs are evolving. “The biggest risk is clearly some company coming up with new technology that we’re not counting on,” Lee said. “They need to keep innovating to stay ahead of those patent expirations as well.