If you aren't familiar with the Danish pharmaceutical company Novo Nordisk (NVO 0.84%), I bet you've seen commercials for its flagship medications Ozempic, Rybelsus, and Wegovy.
Indeed, the diabetes and obesity-care markets are scorching hot -- and Novo Nordisk is leading the charge thanks to its breakthrough treatments. 2023 was a milestone year for the company, and investors sent shares soaring by 53%.
But even after such a significant run-up in the stock, the momentum doesn't appear to be slowing down -- shares of Novo Nordisk are up 27% so far this year. With the stock hovering around all-time highs, surely some investors might be considering taking some profits.
While the temptation would be understandable, I think Novo Nordisk's best days are ahead. Let's dig into why.
Novo Nordisk's magical run is impressive, but...
Last year it seemed like the good news kept getting better during each quarterly update from Novo Nordisk. Ozempic and Rybelsus, which are both classified as glucagon-like peptide-1 agonists, are experiencing surging demand.
The table below illustrates the sales growth of each of Novo's red-hot diabetes treatments.
| Category | 2023 Revenue | YOY % Growth |
|---|---|---|
| Injectable GLP-1 | $15.2 billion | 50% |
| Rybelsus | $2.7 billion | 71% |
| Total GLP-1 | $17.9 billion | 52% |
Data source: Novo Nordisk Investor Relations. Revenue is in USD converted from Danish kroner. YOY= Year over year.
It's important to note that Novo Nordisk lumps another diabetes medication, Victoza, into its Injectable GLP-1 reporting segment along with Ozempic. The growth rates from Novo Nordisk's various diabetes treatments have helped the company attain a majority share of the GLP-1 market.
Additionally, the company's chronic weight-management treatment, Wegovy, has been a resounding success. Sales in obesity care grew 154% in 2023 to $6.1 billion. Also, sales of Wegovy surged 393% just in the U.S. last year.
Although this growth is impressive, I understand if you're leery that the music might stop. However, the good times just keep on rolling for Novo Nordisk.
Image source: Getty Images.
...even better days could be ahead
Generally speaking, after a pharmaceutical company develops a breakthrough drug, the Food and Drug Administration (FDA) will allow these companies to conduct additional research to see if the medication has any other applications. This is known as an expanded indication.
Given Novo Nordisk's progress in treating obesity and diabetes, the company has been exploring if any of its treatments have use cases in heart disease. This is a natural platform to expand upon because both diabetes and obesity are often correlated with the risk of stroke, hypertension, or cardiovascular complications.
Earlier this month, the FDA approved Wegovy for patients with heart disease. This is a huge deal and a big win for Novo Nordisk as it looks to widen the gap with its rival Eli Lilly -- the developer of Mounjaro and Zepbound.
Lilly has also been experimenting with expanded indications of its weight-loss treatments in the cardiovascular market. But the expanded indication for Wegovy helped Novo beat Lilly to the punch.
According to a study conducted by Precedence Research, the cardiovascular drug market is expected to reach $200 billion by 2032. Prominent treatments used in patients with heart disease include Pfizer's Vyndaqel and Vyndamax, Mavacamten from Bristol-Myers Squibb, and Praluent from Sanofi.
Other major pharmaceutical companies developing treatments for cardiovascular patients include Merck, AstraZeneca, and Novartis. With the addition of Wegovy entering the space, Novo Nordisk appears to be in very good company and has an opportunity to tap into an enormous market.
If this weren't enough to get you amped up, Novo Nordisk just showed investors that it may be on the verge of another blockbuster drug. The company released positive data from a phase 1 clinical trial for its new medication, Amycretin.
Novo Nordisk hopes that Amycretin will be another layer in its obesity-care portfolio. The primary differentiator from Wegovy is that Amycretin is an oral supplement, while Wegovy is currently an injectable.
According to the World Obesity Atlas, over 800 million people worldwide with obesity -- and yet only 2% are receiving the care they need. I see Amycretin as a potential way for Novo Nordisk to expand its reach in obesity care beyond the already successful Wegovy.
Should you take some profits?
Knowing when to sell a stock is hard. Unless you're questioning Novo Nordisk's long-term viability or identified higher conviction opportunities, I think selling now leaves too much on the table.
Despite its dominance in diabetes and obesity care, research suggests that these markets are set to grow exponentially for decades. Research published by the International Diabetes Federation suggests that by 2045, 12.2% of the global adult population will be diabetes patients. While this may seem small, that equates to nearly 1 billion people worldwide. To me, this solidifies a robust long-term path for Novo Nordisk.
Given the company's competitive advantages in diabetes and obesity care, I don't see the potential entrance of new competitors as too much to worry about. In fact, increased competition often breeds further innovation. So, while Eli Lilly and smaller players such as Viking Therapeutics could encroach on Novo's territory, I'm not convinced this is a reason to sell the stock.
As an investor, I am optimistic that Novo Nordisk is laying the foundation for long-term success across many areas of the healthcare spectrum. For this reason, despite shares soaring to new highs, I see profit-taking as more of an emotional reaction than a sound financial decision. My conviction remains high, and I'm happy to continue holding onto my position.
