Novo Nordisk (NVO 0.02%) is planning to pause some of its advertising campaigns for its obesity drug Wegovy, due to white-hot demand in the U.S. The impact of the move isn't the marketing costs it saves, but the unambiguous message it sends: Wegovy is probably going to bring in even more sales than management expected -- and it had expected quite a bit.
But capturing that growth is clearly going to require some agility from the drugmaker, as it might need to bolster its manufacturing capacity in addition to rethinking its advertising. Here's what shareholders and potential investors need to know about the implications.
Wegovy is looking like it'll be a home run
This isn't the first time that demand for Wegovy has been greater than what the pharma can manufacture, and it's no surprise why. In the first quarter of 2023, the business reported that its obesity-care sales had grown by 131% year over year to reach $1.1 billion.
Shortly after the drug debuted on the market, during the summer of 2021 and through much of 2022 patients faced delays in getting their prescriptions filled. Nonetheless, in January 2022, Novo Nordisk started a major marketing campaign intended to raise awareness of obesity as a chronic health issue and drive more patients to initiate treatment. That effort was launched amid supply issues caused by one of its manufacturing partners, which were on track to be resolved shortly at the time.
Novo Nordisk signaled this February that it was ramping up production even more, as demand was still significant. In March, the company hiked its forecast for Wegovy sales in 2025 to more than double, from $1.7 billion to $3.7 billion. Considering that its trailing-12-month (TTM) revenue is $26.3 billion, the new peak sales estimates mean that by mid-decade, the medicine will likely provide an even larger proportion of the top line than anticipated.
But in early May the company said it would move to limit the number of doses allocated to new patients starting treatment, so as to prioritize doses going to existing patients. This was also roughly around the first time that it said it would be curbing certain advertising campaigns to tamp down demand.
As you can see, Novo looks like it's consistently behind the ball because of Wegovy's success. At this point, it wouldn't be too surprising if it announced in a couple of months that its marketing efforts were going back to full steam ahead, or that it was opting to expand manufacturing capacity at an even larger scale. But don't go rushing to buy this stock simply because Wegovy is practically destined to be a hit, because there's a bit more to this story.
Competition risks are now looming larger than before
For Novo Nordisk to realize its ambitious sales targets for Wegovy and make itself look even more appealing to investors, it needs to navigate a couple of issues in a timely fashion.
First, its supply situation has to be rectified quite soon if it's going to retain market share. Powerful big pharma competitors like Eli Lilly (LLY -2.37%), with its drug tirzepatide (already marketed to treat diabetes under the name Mounjaro), are rocketing toward commercialization to treat obesity. And some of Eli Lilly's clinical trial data suggests that tirzepatide might be even more effective than Wegovy for weight loss. So there may soon come a time when patients seeking Wegovy might settle for tirzepatide instead -- or if things really go sideways for Novo, perhaps even the reverse situation could happen, meaning Wegovy would be playing second fiddle.
Second, Novo needs to give investors a better idea about how much its costs related to Wegovy are fluctuating in light of changes to its marketing and its manufacturing. It's likely that the amount of money it's saving on cuts and spending on capacity expansion won't be enough to move the needle, but it's better to know that with certainty. And Novo should disclose some of its timelines for completing those adjustments, too.
So should you buy Novo Nordisk stock because of how much people want to get their hands on Wegovy? It isn't the worst idea. But the market for obesity therapies is heating up big-time. While this company is doubtlessly one of the early leaders, a lot will change as more competitors enter. Don't base your entire investment thesis on demand for one medicine, even if people are flocking to buy it.
