Danish drugmaker Novo Nordisk (NVO -0.29%) has been on an epic bull run ever since the Food and Drug Administration (FDA) approved its weight-loss medication, Wegovy, in the summer of 2021. The pharmaceutical giant's shares have more than doubled in value over this period, while the broader markets have struggled due to a confluence of geopolitical headwinds, the lingering impacts of the pandemic, and rising interest rates.
Novo's blistering growth trajectory has been fueled by Wegovy's active ingredient, semaglutide, which is a glucagon-like peptide-1 (GLP-1) agonist that helps to regulate appetite, food intake, and blood sugar. Thanks to its promising clinical profile in the metabolic disease arena, semaglutide first debuted as a treatment for type 2 diabetes as a once-weekly injection (Ozempic) and, later, in pill form (Rybelsus).
What's important to understand is that Novo Nordisk expects the number of people living with diabetes to rise by a staggering 32% to 784 million by 2045. And obesity is projected to afflict nearly a quarter of all humans worldwide by the mid-century mark.
Wall Street analysts, as a result, are expecting some truly eye-popping sales figures from Novo's GLP-1 franchise in the years ahead. In 2031, for example, the drugmaker's GLP-1 offerings are forecast to hit a staggering $47 billion in sales, according to Morningstar analyst Karen Andersen, CFA.
To put this forward-looking sales figure into context, Novo's annual sales are expected to hover around $40 billion-ish on a constant-currency basis in 2024. That's $40 billion in total across its four major franchises consisting of diabetes, obesity, rare diseases, and cardiovascular disease.
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Should investors buy into this impressive growth story, or has Novo's stock hit a ceiling? Let's dig deeper to find out.
Novo's strengths, weaknesses, and future opportunities
On the plus side, Novo has proven its ability to capture and subsequently maintain market share in the high-value diabetes space. At last count, the company owned nearly a third of the diabetes drug market despite fierce competition from innovative new medicines from Eli Lilly (LLY -1.00%) and others.
Novo, in short, has been able to stay ahead of the competition by continuously innovating in diabetes care, evidenced by the advent of groundbreaking medicines like Ozempic and Rybelsus. The company's long and successful operating history in diabetes treatment implies that it ought to be able to maintain a formidable economic moat in this key product category for the foreseeable future.
The obesity-care segment, however, is far less predictable. Lilly plans on challenging Wegovy's dominance in this space via its type 2 diabetes drug, Mounjaro, which is currently under review with the FDA as a potential weight-loss treatment for obese adults.
What's more, Pfizer and Viking Therapeutics, among others, are developing promising weight-loss medications of their own right now. So it might be a bit premature to pencil Wegovy in as one of the top market-share leaders in obesity treatment by decade's end.
That being said, Novo also has designs on expanding semaglutide's label to possibly include other high-value indications such as Alzheimer's disease, non-alcoholic steatohepatitis, and heart failure. These ancillary markets to diabetes/obesity each represent multibillion-dollar opportunities for Novo's flagship product.
Is Novo's stock a screaming buy?
With an unappealing forward-looking earnings yield of 3.3%, Novo's stock is far from cheap -- at least within a near-term perspective. Investors are clearly optimistic about Novo's deep value proposition due to its latent commercial opportunity in weight-loss treatment.
But that's where things get a little foggy. Novo's long-term outlook will ultimately depend on how a multitude of factors play out in the nascent weight-loss market.
What's the bottom line? Novo's shares don't exactly screen as a screaming buy right now due to the very real possibility that competitors will ultimately eat into the company's lucrative opportunity in obesity treatment. That doesn't mean that Novo's stock isn't worth owning, but investors should probably temper their expectations after its enormous uptick over the past two years.
