Ozempic Could Have a New Multibillion-Dollar Market Opportunity. Is Novo Nordisk Stock a No-Brainer Buy?

Editor's note: This article has been corrected. The FDA has approved approved Mounjaro (tirzepatide) to treat type 2 diabetes.

Ozempic has reached a level of popularity that few prescription medications ever attain. Although the drug is officially approved in the U.S. only for treating type 2 diabetes and cardiovascular risk reduction, it's prescribed frequently off-label for weight loss.

Novo Nordisk (NVO 0.84%) has enjoyed tremendous momentum for Ozempic and its sibling product, Wegovy. Both are the same underlying drug (semaglutide) but with different dosages and regulatory approvals. Wegovy won U.S. approval for weight loss in 2021.

Now, it looks like Ozempic (and Wegovy) could have a new multibillion-dollar market opportunity. Is Novo Nordisk stock a no-brainer buy as a result?

Major NASH cash?

Nonalcoholic steatohepatitis (NASH) is a disease where liver inflammation and damage are caused by a buildup of fat in the liver. The U.S. Food and Drug Administration (FDA) thinks that as many as 16.8 million U.S. adults have NASH.

There is currently no approved drug for treating NASH. However, some project the market for NASH drugs could reach $20 billion by the end of the decade.

What does all of this have to do with Ozempic? Novo Nordisk is conducting a late-stage clinical study of semaglutide in treating NASH. And it has generated a lot of excitement in the medical community.

A recent Spherix Global Insights physician survey found that semaglutide is the "most recognized and anticipated" potential treatment for NASH. That's impressive considering that several companies have programs in development targeting NASH.

Between 52% and 75% of respondents (the numbers differed based on the area of specialty) said that they'd be "very likely" to prescribe semaglutide for NASH or for nonalcoholic fatty liver disease (NAFLD), the broader group of conditions to which NASH belongs. In addition, 10% to 20% of the survey's respondents said that they'd be "moderately likely" to prescribe the drug.

Great news for Novo

Novo Nordisk is already reaping the rewards from the demand for Ozempic and Wegovy. In the first three months of 2023, Novo Nordisk's sales jumped 27% year over year while its net profit soared 39%.

CEO Lars Fruergaard Jørgensen attributed this impressive growth to Novo's to Ozempic and Wegovy. The two products combined generated sales of 24.2 billion Danish kroner, which amounts to around $3.6 billion. 

If the numbers from Spherix's survey hold up, Novo Nordisk could be in for a huge sales boost in the future. Let's assume the projections of a $20 billion NASH market are on target. Novo just might be on track to capture half of that market or more based on the survey results.

Not so fast

Does the NASH opportunity make Novo Nordisk stock a no-brainer buy, though? Not so fast.

For one thing, the company's phase 3 study isn't scheduled to wrap up until July 2029. Sure, it's possible that some doctors could prescribe Ozempic or Wegovy off-label for their NASH patients. However, that date is too far into the future to place a big bet on Novo Nordisk stock now.

More importantly, a lot could change between now and then. For example, Eli Lilly (LLY 1.19%) appears to have an even more powerful treatment for helping patients lose weight than semaglutide with its tirzepatide. 

Tirzepatide has already been approved by the FDA for treating type 2 diabetes and is marketed under the brand name Mounjaro. Lilly hopes to win FDA approval in the weight loss indication as early as late 2023.  

Some analysts think that Mounjaro will ultimately generate greater sales than Ozempic and Wegovy. Physician sentiment could easily shift in favor of Lilly's drug if it achieves greater commercial success in treating obesity. Lilly is evaluating tirzepatide in a phase 2 study targeting NASH that should wrap up early next year. 

But Madrigal Pharmaceuticals (MDGL -0.54%) could beat both Novo Nordisk and Eli Lilly in the NASH market. The company recently filed for FDA accelerated approval of resmetirom in treating adult NASH patients with liver fibrosis. 

Ozempic and Wegovy could be contenders in the NASH market down the road. However, investors shouldn't equate physicians' early endorsement of Novo Nordisk's drug in the NASH indication with market success just yet.