It's hard to overstate how well Novo Nordisk (NVO +3.76%) has performed over the past year. The Denmark-based company has even been credited for helping lift the economy of its country. It has routinely delivered excellent financial results and solid clinical progress, things investors interested in drugmakers want to see.
However, following its performance in the past 12 months, some might think it's too late to invest in Novo Nordisk. Is that the case? Let's consider one argument on each side.
Data source: YCharts
Green flag: A strong lineup about to get stronger
Novo Nordisk is a leader, perhaps the leader, in the diabetes drug market. The company's medicines that help control diabetes and obesity are currently its biggest growth drivers. The most important ones are Wegovy and Ozempic (both are branded versions of injectable semaglutide, but at different doses). Revenue has been growing incredibly rapidly for both.
In the first half of 2023, Ozempic's sales came in at 41.7 billion Danish kroner ($5.9 billion), 58% higher than the year-ago period. Wegovy performed substantially better in terms of growth. Its sales increased by 367% year over year to 12.1 billion kroner. The obesity drug market is projected to skyrocket through the end of the decade, which could potentially be a significant tailwind for Novo Nordisk.
However, there is much more to the drugmaker. Novo Nordisk looks to be inching closer to major approvals. Ozempic is currently being investigated as a treatment for nonalcoholic steatohepatitis (NASH), a disease caused by accumulated fat in the liver. One of the main risk factors for NASH is obesity, so it's not surprising to see Novo Nordisk dipping its toes into these waters.
The NASH market is also projected to increase exponentially in the next few years as more biotech companies join the race. Novo Nordisk boasts several other NASH candidates in earlier stages.
Ozempic also recently aced a clinical trial in treating kidney disease in diabetes patients, another meaningful potential label expansion. Meanwhile, the company's icodec, a once-weekly insulin product, is being considered for approval by the U.S. Food and Drug Administration (FDA) and parallel agencies in Europe and China.
Novo Nordisk recently updated its 2023 forecast. It now expects sales growth between 32% and 38% for the year (up from 27% to 33%), along with operating profit increases in the neighborhood of 40% to 46% (up from 31% to 37%). Given that its lineup should become even stronger next year, the company's financial results could impress even more unless something hinders Novo Nordisk's growth.
Here's one possible candidate.
NYSE: NVO
Key Data Points
Red flag: Dangerous potential side effects
While medicines are tested for safety and efficacy before earning approval, real-world use is the best test there is. And occasionally, we learn more about approved therapies after they are launched.
Recently, there have been questions surrounding Ozempic's safety profile and side effects. The FDA updated Ozempic's label to include a potential risk of intestinal blockage in September.
But that's not all. More recently, a study published by the University of British Columbia uncovered more potential risks associated with Ozempic and other medicines of its kind, GLP-1 agonists that mimic their namesake hormone in the body to help control blood sugar levels. The study found that Ozempic was associated with a higher risk for several conditions, including pancreatitis, gastroparesis, and bowel obstruction.
In the worst-case scenario, Ozempic could be yanked off the market, but that's unlikely, given that these side effects still seem relatively rare. The FDA could once again update Ozempic's label. These changes could eventually affect the medicine's sales.
Is Novo Nordisk stock a buy?
Novo Nordisk's strong financial results and robust pipeline make a strong case in favor of investing in the company. It's hard to predict whether or to what extent the side effects associated with Ozempic will hurt the stock, but they don't seem to have had much of an impact on demand, at least not yet.
That's why Novo Nordisk updated its outlook for the year. In my view, the company's prospects look far too strong for these as-of-yet-unknown risks to scare off investors.
That's why I think Novo Nordisk's shares are still worth buying today, even as they have crushed the market over the past year.
