Up 41% so far this year on hot sales of its drug Ozempic, Novo Nordisk (NVO 1.55%) isn't wasting any time in teeing up a few attempts at minting its next blockbuster. Ozempic 2.0 is already in the works, and there's no chance that it'll give up if there's a setback.
But things don't move so quickly in the pharmaceutical industry, and buying shares right now, right after a big run-up, may not be the optimal strategy for investors to make the most of the company's next attempts.
So let's take a look at what it's doing, how long it might take for those efforts to pay off, and what investors can do to profit.
Making another Ozempic is well underway
In case you haven't heard of it, Ozempic is Novo Nordisk's rock-star drug for type 2 diabetes. It's also the same molecule as Wegovy, the pharma's treatment for obesity. In Q2, Ozempic sales were more than $3 billion, and its ramp-up may just be getting started. So it's pretty clear there's a huge incentive to replicate its success with a follow-up medicine that could address the same set of conditions, but better.
At the moment, it has six phase 3 clinical trials working on expanding the approved set of indications for Ozempic and its sibling drugs. A pair of those trials are testing the drug for its usefulness in treating Alzheimer's disease and metabolic-associated steatohepatitis (MASH, which is also commonly called non-alcoholic steatohepatitis, or NASH). But the company is also forging ahead with a handful of earlier-stage efforts to create a superior therapy for diabetes and obesity.
On Aug. 30, Novo announced that it had acquired Embark Biotech for $16 million upfront, with a commitment to pay out up to an additional $498 million based on reaching specific pharmaceutical development milestones. Embark's lead program, while still very early stage and with an undisclosed physiological target, is said to increase the rate at which a patient's cells burn energy by creating heat. Its management also claims that it can suppress patient's appetites. It'll be a long while before the biotech's efforts translate into another Ozempic (if they ever do).
But Embark is just the latest acquisition of biotechs bearing promising assets for treating obesity and type 2 diabetes. On Aug. 10, Novo announced that it had agreed to buy Inversago Pharma for more than $1 billion in cash, contingent on certain milestones. Inversago's candidates are still in early-stage clinical trials, but they use a different mechanism of action than Embark's programs and also different from the medicines that Novo Nordisk has already commercialized. One of the benefits of Inversago's approach is that it may be especially effective at attenuating patients' appetites.
Management's strategy with these two acquisitions is crystal clear: Make a bunch of distinct bets in the disease spaces of interest so that if any individual attempt fails, the others will still have the same chance of success.
In the end, the company could thus have a handful of different drugs on the market for treating obesity and diabetes in the context of different comorbidities, like liver or heart disease. It could also eventually market powerful combinations of its existing medicines, surpassing the efficacy of any single drug alone. And attaining those outcomes would make it a great pharma stock to own over the coming years, to say the least.
Don't expect the competition to be sleeping
There is a risk worth knowing about before diving into a position.
In the long term, it is reasonable to expect Novo Nordisk to succeed in making a successor worthy of Ozempic's throne. But its rivals are way ahead, so the bar will be higher next time around. Eli Lilly's drug Mounjaro is proof that Novo Nordisk will face competition whenever it can create a sequel to Ozempic.
Unlike Ozempic, Mounjaro has two physiological targets to address diabetes rather than just one, which makes it more effective. Novo has a similar program in phase 1 that's aimed at the same targets, but it'll be years before it hits the market (if it ever does).
Buying shares of this business is the surest way to profit from Ozempic 2.0, whenever it's ready. It might also make sense to buy call options for the stock well in advance of major clinical data readouts, of which there are sure to be many.
