Obesity is a problem that isn't going away. According to data from the Centers for Disease Control and Prevention, over 4.5 million teens and children in the U.S. had severe obesity in 2018. And with obesity being tied to many diseases, it's not hard to find reasons as to why demand for effective weight-loss treatments could go through the roof in the future.
One such treatment is Wegovy, a drug made by Danish biotech company Novo Nordisk (NVO +1.23%). It's already a blockbuster drug, generating over $1 billion in annual revenue. But it remains in its early growth stages. And as researchers study Wegovy, there could be even greater potential for it to treat a wider range of conditions, paving the way for much more revenue growth in the years ahead.
A recent study finds Wegovy could reduce the risk of heart attack and stroke
If obesity can lead to cardiovascular issues, then it may come as little surprise that a weight-loss treatment such as Wegovy has been found to prevent major cardiovascular events like heart attacks and strokes. According to a study from Novo Nordisk, it found that Wegovy reduced the risk of a heart attack or stroke by as much as 20% when compared to a placebo. The study was a large one that included 17,600 adults who were overweight.
The results are encouraging and they could help accomplish multiple things. The first is that it could give patients additional incentive to use Wegovy, beyond just weight loss. The second is that health insurers could also see a reason to help cover the drug. At more than $1,300 per month, Wegovy isn't cheap and many health insurance plans don't cover it and other weight-loss drugs. As more studies come out potentially demonstrating the effectiveness of Wegovy beyond just helping people lose weight, there could be more insurers covering the treatment, which, in turn, can lead to more patients using it.
NYSE: NVO
Key Data Points
$4 billion this year and plenty more on the horizon
For 2023, analysts project that sales of Wegovy could top $4 billion. Through the first six months, the drug has already generated $1.7 billion in revenue for Novo Nordisk, more than quadrupling from the year-ago period. And as the company ramps up manufacturing and the supply of Wegovy improves, there will be more revenue growth down the road.
Investors only need to look at another popular drug -- Mounjaro from Eli Lilly (LLY 1.98%) -- as an example of how much room there could be for Wegovy to skyrocket in sales. Mounjaro is a diabetes drug that in trials has shown it can help people lose more than 26% of their body weight over the course of 84 weeks. It may only be a matter of time before the Food and Drug Administration approves it as a treatment for chronic weight management. At its peak, some analysts are saying sales could top more than $50 billion.
There aren't any such high forecasts for Wegovy, but that doesn't mean the drug also couldn't generate tens of billions in revenue. In trials, Wegovy has been able to help people lose about 15% of their weight, on average, over a 68-week period. That's less than Mounjaro's impressive results but it was also over a shorter time frame.
Both drugs, however, could have even more potential upside than what analysts project today just because as more studies come out, suggesting more uses for these weight-loss drugs, the more revenue they can generate for their respective businesses.
Should you buy Novo Nordisk stock?
Novo Nordisk stock has been a hot investment to own this year, rising 38% since January. The shares' earnings multiple of 43 could be a deterrent for investors, however, as that is a high premium for the business. But when compared to Eli Lilly, which is trading at well over 70 times trailing earnings, it doesn't look as bad. And when you consider the potential for Wegovy to be a huge catalyst for the business in the long run, it makes the price tag more tenable, especially for long-term investors who are willing to buy and hold.
Despite its seemingly high valuation, Novo Nordisk could still be an excellent investment to buy right now.
