Novo Nordisk (NVO 2.55%) is trading at a 52-week high. At 45 times trailing earnings, shares of the Danish drugmaker may look expensive to many investors. But despite the seemingly lofty price tag, there's still a bullish case to be made for the stock to go higher, given the potential for its promising weight-loss treatment, Wegovy, to continue to dominate.
In fact, there could be a significant catalyst coming for Novo Nordisk, which could soon make this already red-hot stock an even more appealing buy.
Wegovy could obtain approval for another indication
In 2021, the Food and Drug Administration approved Wegovy as a treatment for chronic weight management. It was the first such approval since 2014, as regulators have been cautious when it comes to weight-loss drugs. But in clinical trials, the glucagon-like peptide 1 drug has been incredibly effective, helping patients lose 15% of their body weight, on average, over a two-year period.
NYSE: NVO
Key Data Points
But that may not be the only indication that Wegovy is approved for in the end. In a recent clinical trial, researchers at Novo Nordisk found that Wegovy could reduce the risk of heart attack or stroke by as much as 20%. In November, Novo Nordisk said that Wegovy may obtain expanded approval for lowering the risk of heart-related illnesses within six months. That timeline would suggest it may only be a few more months before a decision is made on Wegovy with respect to cardiovascular risk.
Why this could be a huge development
If Wegovy obtains approval for another indication, that can demonstrate its effectiveness beyond just being an effective treatment for weight management. And by doing so, that can make it more likely that health insurance companies provide coverage for the drug. Without insurance, Wegovy can cost more than $1,300 per month. Over the course of a full year, that comes out to over $16,000.
While that amount can be lowered with the help of coupons, the drug's cost can nonetheless be an obstacle for many patients. By giving insurance companies more justification to provide coverage to patients, that can increase the probability that they will help cover the costs.
Many insurance companies are hesitant to provide coverage for weight-loss drugs as they are unconvinced about the long-term medical benefits. By obtaining an expanded approval, which would include reducing the risk of cardiovascular disease, Wegovy could alleviate those concerns.
Wegovy's revenue could grow even faster
Sales of Wegovy have been through the roof, rising by more than 400% last year to 31.3 billion Danish krone ($4.5 billion). The company has been forced to scale back its on its rollout due to supply issues, but that should improve in the future.
Recently, Novo Nordisk's sister company, Novo Holdings, announced plans to buy Catalent, a drug manufacturer, for $16.5 billion. This would help to improve Wegovy's overall supply; Novo Nordisk would buy three manufacturing sites from Novo Holdings for $11 billion.
Between increasing its supply of Wegovy and demand possibly going even higher due to expanded approval and use of the drug, sales of Wegovy could continue to soar, not just this year but for the foreseeable future.
It's not too late to invest in Novo Nordisk stock
If you were to simply look at Novo Nordisk's valuation, you might be tempted to steer clear of the stock, thinking that it is too expensive.
But its market capitalization, which sits at over $530 billion, could continue to go higher, given the long-term opportunities here. Wegovy is an incredibly promising weight-loss treatment, and an expanded approval that stretches beyond just obesity could help its sales soar even higher.
As long as you're willing to hold shares of Novo Nordisk for the long haul, this can be an excellent healthcare stock to own, even at its elevated valuation.
