Over the last few years, some of the best-performing stocks in the broader healthcare space have been pharmaceutical businesses. A big reason for this is the rise in popularity of weight loss medications.
Ozempic and Wegovy are two of the most mainstream treatments prescribed in diabetes care and chronic weight management. Novo Nordisk (NVO 1.11%) is the maker of both blockbuster drugs, which have been a lucrative source of growth for the company.
While this is all good news for Novo Nordisk, the company has yet to reach its full potential. Let's dig into some new developments in the healthcare space, and assess why Novo Nordisk's new growth opportunity could just be getting started.
NYSE: NVO
Key Data Points
Sales of weight loss treatments are soaring, but there's a notable bottleneck
One of the inconvenient truths about Ozempic and Wegovy is that both drugs command a hefty price tag, and health insurance coverage for each is limited.
Unfortunately, many patients who are eligible for these treatments are turned away because they simply can't afford out-of-pocket payments. Despite the success of Novo Nordisk's weight loss business, the company clearly is not capturing its total addressable market.
This should cast some doubt over the company's long-term prospects. Thankfully, some new coverage protocols from Medicare are paving the way for more access to weight loss treatments.
Image source: Getty Images.
Medicare is coming to the rescue, and Novo Nordisk should benefit
From a medical perspective, Ozempic and Wegovy are classified as glucagon-like peptide-1 (GLP-1) agonists. Today, GLP-1 agonists are primarily used to treat diabetes and obesity. However, research suggests that they're far more broadly applicable. A recent report from J.P. Morgan indicates that GLP-1 agonists have potential indications ranging from sleep apnea through arthritis, Alzheimer's disease, cardiovascular disease, and more.
Novo Nordisk has been exploring a multitude of expanded indications, and earlier this year received some positive news from the Food and Drug Administration (FDA). Specifically, Wegovy was granted an expanded indication to treat patients at risk of heart disease.
This is where Medicare's new updates come into play. Back in March, Medicare Part D guidelines were updated to include coverage for weight loss medications that have also gained approval for treating heart disease.
In other words, if you are at risk of stroke, hypertension, or other cardiovascular complications and your doctor thinks Wegovy is an appropriate remedy, Medicare has you covered.
Is now a good time to invest in Novo Nordisk stock?
While the changes to Medicare Part D plans don't completely open the door for widespread insurance coverage in weight loss treatments, they're an encouraging first step that should help Novo Nordisk reach additional patients.
With that said, investors shouldn't pour into the stock based on this news alone. Demand for Novo Nordisk's weight loss treatments is so high that the company has actually struggled to match supply and demand for quite some time.
This has forced Novo Nordisk to take some aggressive and costly measures. Earlier this year, the company bought drug subcontractor Catalent for $16.5 billion. The acquisition of Catalent provides Novo Nordisk with a much-needed manufacturing overhaul.
Investing in Novo Nordisk will require patience, discipline, and long-term conviction. With an additional pool of 3 million people who could be eligible for Wegovy, the company's production output could become even more strained. However, this is a near-term challenge to overcome.
The subtle benefit here is that as time goes on, GLP-1 agonists could gain approvals for additional medical treatments -- thereby inspiring Medicare to revise its coverage guidelines. I think the moves Novo Nordisk is making now will better support the company's operations in the long run. I'm also encouraged by these recent changes to Medicare, and see them as a longer-term trend with regards to GLP-1 treatments.
