What happened
Shares of the Danish drugmaker Novo Nordisk (NVO -0.86%) were up by 3.6% on heavy volume Monday. The pharmaceutical company's shares are rebounding following a modest dip last week in the wake of its 2023 first-quarter earnings report.
Specifically, Novo's stock slumped late last week on the news that the company would have to start rationing the lower-strength starter doses of the popular weight-loss drug Wegovy in the U.S. as a result of sky-high demand. During the first three months of the year, Wegovy reportedly helped fuel a 131% increase in year-over-year sales of Novo's obesity care unit, underscoring its importance as a key growth driver for the pharma giant.
So what
Normally, the market would handsomely reward a pharma company for developing a product that's so popular that supply can't keep up with demand. There is an important wrinkle to this story, however.
Eli Lilly (LLY -0.14%) is expected to earn a weight-loss indication for its type 2 diabetes medication, Mounjaro, from the Food and Drug Administration (FDA) at some point this year. Although Wegovy has a first-mover advantage in this enormous market, Mounjaro has been billed by some analysts as a superior weight-loss option compared to Wegovy. Wegovy, in turn, may not live up to its stellar commercial potential.
Now what
So why is Novo's stock rebounding today? Following its latest earnings report, Wall Street analysts largely reaffirmed the consensus view that the obesity care market can easily support multiple megablockbuster-level products comfortably.
Morningstar's Karen Andersen, CFA, for instance, noted that Wegovy should still hit a whopping $20 billion in peak sales later on this decade. Put simply, this bearish competition thesis appears to be overblown due to the favorable commercial dynamics of the U.S. obesity care market.
