[Goldman Sachs Report] Pharma & Bio Rally: The Obesity Drug War and Big Pharma's Next Steps

Original Report Date: February 23, 2026

📌 3-Line Summary

• Paradigm Shift in Obesity Drugs: As the market shifts from injections to oral pills, Novo Nordisk believes 'absolute weight loss numbers' are key, while Eli Lilly emphasizes 'user experience and side effect management'.
• The Butterfly Effect of PBM Reform: With tightening regulations, pharmaceutical companies expect the 'rebate wall' to collapse, creating a fair competitive ground based solely on drug quality and efficacy.
• Big Pharma Top Picks (Lilly & Merck): Goldman Sachs maintained 'Buy' ratings for Eli Lilly with a $1,260 target price and Merck with a $133 target price.

📖 In-Depth Report Analysis

Recently, Wall Street has shown unprecedented interest in global large pharmaceutical companies, evidenced by a significant year-over-year increase in investor participation at Goldman Sachs' annual 'Pharma Bus Tour'. Goldman Sachs evaluated that positive investment sentiment continues across the pharmaceutical sector, although fierce debates persist on an individual company level, such as the obesity drug dominance battle and valuation gaps.

■ 1. The Evolution of Obesity Drugs: Pills and 'Consumerization'
The biggest topic in the pharmaceutical market is obesity drugs, with the market expanding from injections to oral pills. The two companies dominating the obesity drug market have vastly different perspectives. Novo Nordisk predicts that the success of pills depends on achieving the 'highest level of weight loss numbers', believing patients will choose strong efficacy. Conversely, Eli Lilly pointed out that two-thirds of current Wegovy (Novo) users fail to reach the maximum dose due to side effect management, emphasizing that 'actual user experience and side effect management' are more important than just weight loss percentages. In fact, Lilly's oral obesity drug 'Orforglipron' recorded a 9.2% weight loss rate at a 36mg dose in clinical trials, surpassing Novo's 5.3%.

Lilly forecasted that pills would create a new consumer base rather than stealing existing injection patients, and pointed out that Wall Street's pill market share projections are underestimated. Furthermore, the expansion of Medicare Part D coverage for obesity drugs starting in July is a key momentum, which is diagnosed to widen the potential patient pool from the current 12 million to over 20 million. Lilly explained that through the 'consumerization' trend via its direct-to-consumer (DTC) platform, it can lock in customers with fixed-price commitments, thereby defending against revenue declines after patent expiration. Regarding concerns about price plunges due to the emergence of generic drugs, Lilly analyzed that it is difficult to bring prices down significantly without massive upfront capital expenditures because global Contract Manufacturing Organization (CMO) facilities are already full.

■ 2. PBM Reform: The Collapse of the 'Rebate Wall'
Recently, 'PBM reform' has emerged as a major topic as the US Federal Trade Commission (FTC) puts the brakes on large Pharmacy Benefit Managers (PBMs). PBMs have built a 'rebate wall' by receiving massive rebates from pharmaceutical companies in exchange for placing specific drugs on insurance coverage lists. Goldman Sachs reported that executives from major pharmaceutical companies like Novartis, Pfizer, and Lilly viewed this PBM reform as a 'big opportunity' instead. This is because if the rebate wall collapses, they can compete fairly based solely on the 'quality and efficacy' of the drugs. Novartis and Pfizer mentioned that PBM reform would be advantageous for their new drug development strategies in immunology, and for example, Pfizer expressed confidence that its new atopic dermatitis drug could be a competitive alternative against existing blockbuster drugs. Lilly also pointed out that companies relying solely on the existing PBM system could face significant losses.

■ 3. Aggressive M&A and Oncology/Immunology Pipeline Battles
Mergers and acquisitions (M&A) strategies of Big Pharma, backed by abundant cash, are also drawing attention. Lilly revealed its intention to expand its acquisition targets to large, late-stage pipeline companies nearing Phase 3 clinical trials, and stated it would consider massive share buybacks if no suitable investment targets are found. On the other hand, Merck explained it prefers acquisitions around the $10 billion scale in its core areas like cardiovascular diseases or ADCs. In the oncology sector, bispecific antibodies and ADCs are the main topics, and both Pfizer and Merck are closely watching the clinical results to be announced by Summit Therapeutics this year. Merck stated that clearly proving the improvement in patients' Overall Survival is important, but even without fully positive results, extending Progression-Free Survival has value, and they plan to find a breakthrough by combining it with ADCs.

■ 4. Eli Lilly: Explosive Potential Hidden in Conservative Guidance
Goldman Sachs maintained a Buy rating and a target price of $1,260 for Eli Lilly (an upside of about 24.8%). Lilly's revenue is projected to jump from about $45 billion in 2024 to $97.7 billion in 2027, and its Earnings Per Share (EPS) from $13.04 to $42.10. Lilly executives hinted that the recently announced 2026 revenue guidance was set 'conservatively', and evaluated that the risk of achieving the $80 billion guidance bottom end has already been eliminated, confirming strong demand outside the US. Goldman Sachs presented the April approval review and Q2 launch of the oral drug Orforglipron, along with the July expansion of Medicare Part D coverage, as Lilly's catalysts. Additionally, Lilly pinpointed the neuroscience sector, specifically Alzheimer's new drug development, as its next growth engine beyond obesity drugs.

■ 5. Merck: The Masterplan to Defend Keytruda's Patent Cliff
Goldman Sachs also presented a Buy rating and a target price of $133 for Merck (reflecting a 9.1% upside). The biggest concern for Merck is the patent expiration of 'Keytruda', the world's top-selling oncology drug, scheduled around 2029, which anticipates pressure for price cuts and generic entries. In response, Merck stated plans to actively defend some remaining patents until 2029 and build a $70 billion pipeline by the mid-2030s, including expanding its animal health business. Merck also plans to eliminate $35 billion in pipeline risks by the end of 2026 through the commercialization of treatments like pulmonary arterial hypertension. As a strategy to defend Keytruda, Merck plans to switch 30-40% of existing intravenous injection patients to a subcutaneous injection formulation, whose patent is maintained until 2043, explaining that it is considered a separate product to avoid price cuts and prevent patient loss.

💡 StockHub Insight & Comments

Observing the strategic moves of these Big Pharma giants, it is clear that success in pharmaceutical investments is no longer just about 'who develops the new drug first.' It is heavily dependent on how cleverly companies leverage regulatory shifts (like PBM reform and Medicare expansion) and execute defensive strategies (like DTC channels and formulation changes).

For investors, the expansion of Medicare Part D coverage for obesity drugs starting in July is the most powerful catalyst to watch. When constructing an equity portfolio geared towards innovative growth, top-tier pharmaceutical companies like Eli Lilly—which drive M&A and new pipeline expansions backed by massive cash generation capabilities—will serve as excellent core assets.