Danish pharmaceutical giant Novo Nordisk (NVO 0.84%) is having a bit of a moment. If you're unfamiliar with the company by name, you might be more acquainted with commercials for its flagship treatments Ozempic, Rybelsus, and Wegovy. Ozempic is probably the most recognized of the bunch as its commercials feature a catchy spin on the 1970s song, "Magic" by Pilot.
The popularity of the company's diabetes and obesity medications is downright staggering. Last week, Novo Nordisk reported earnings for its fourth quarter and all of 2023, and investors have been cheering ever since. Despite a brief run-up in the stock, long-term investors have plenty of reasons to remain bullish.
Let's dig into the report and assess why Novo Nordisk presents a compelling and lucrative investment opportunity.
Novo Nordisk's hidden gem
While Ozempic, Rybelsus, and Wegovy have some overlapping qualities, there are important distinctions among these medications that investors should understand.
All three treatments leverage the same compound, semaglutide. However, Ozempic and Rybelsus are both glucagon-like peptide-1 (GLP-1) products used for patients with diabetes. In essence, Ozempic is not formally approved for weight loss by the Food and Drug Administration (FDA) -- although weight loss can be an effect of the blockbuster drug.
On the other hand, Wegovy is Novo Nordisk's most popular product for patients with obesity and is approved by the FDA for chronic weight management. The table below illustrates the growth in revenue for Novo Nordisk's core therapy areas for 2023.
| Therapy Area | U.S. | International | Overall |
|---|---|---|---|
| GLP-1 | 52% | 53% | 52% |
| Obesity care | 212% | 47% | 154% |
| Insulin | (23%) | 0% | (6%) |
| Rare diseases | (1%) |
(24%) |
(15%) |
| All areas | 54% |
16% |
36% |
Data source: Novo Nordisk investor relations.
It's clear that while the company is experiencing some shrinkage across its rare diseases and insulin operations, GLP-1 and obesity care products are more than making up for these losses. On the surface, investors may attribute these gains to Ozempic. However, a closer look at Novo Nordisk's entire business sheds light on its other star: Wegovy.
Obesity care sales increased 154% in 2023, with the U.S. making the largest contribution. In fact, sales of Wegovy grew 393% in 2023 just in the U.S. While it's clear Novo Nordisk has strong momentum among diabetes and obesity patients, investors should get a glimpse of the competitive landscape.
Image source: Getty Images.
Rising competition might be a good thing
Given the popularity of weight-loss treatments, more and more pharmaceutical companies are looking to get involved. Pfizer recently experienced some setbacks in its pursuit of the weight-loss market, while nutrition specialist Abbott Laboratories may have just unlocked a creative way to participate. For now, Novo Nordisk's biggest threat in the space is Eli Lilly -- the developer of Mounjaro and Zepbound.
Although Lilly is undoubtedly enjoying its own ride in the diabetes and obesity markets, the introduction of more intense competition could actually be a good thing overall.
According to some estimates on Wall Street, the addressable market for weight-loss medications could range anywhere from $100 billion to $200 billion by 2030. Moreover, industry research suggests that by 2050 there could be 1 billion people with diabetes worldwide.
These figures signal that the market for weight-loss medications is already enormous, and that it's expected to grow exponentially in the coming decades. Given Novo Nordisk's commanding lead in the GLP-1 market, the company looks well-positioned for sustained gains for the foreseeable future.
Investors should keep the long term in focus
As of this writing, Novo Nordisk is trading at a forward price-to-earnings (P/E) multiple just over 36 -- well above the S&P 500's forward P/E of 22.
Although the stock is trading at a premium to the market, Novo Nordisk has consistently delivered robust operating results for several quarters now. More importantly, the company is deploying capital aggressively through acquisitions in an effort to bolster its product pipeline. This is a clear sign that management is already thinking beyond the potential of Ozempic and Wegovy and looking to create a more differentiated and prolific medicine company.
While the stock has enjoyed quite the run-up, I'd caution investors against trying to time the perfect moment to buy. Given the company's impressive performance and its encouraging outlook, now could be as good a time as ever to scoop up some shares in Novo Nordisk.
