Wall Street analysts can't agree on Novo Nordisk (NVO -2.96%), with Morgan Stanley recently cutting its rating to underweight on the back of disappointing growth in key prescriptions in the U.S., and HSBC Holdings recently raising its rating to a buy on the strength of the potential of its pipeline. Who's right?
Novo Nordisk is a speculative buy.
The HSBC approach, in this case, may be sensible, at least on a risk-reward basis. The nearly 50% drop in Novo Nordisk shares is likely a reflection of the market's disappointment in Wegovy's (semaglutide) share loss in the weight loss market to Eli Lilly's Zepbound (tirzepatide).
That said, the company has a few upcoming events that could return the stock to favor. First, it's leading the race to get an oral weight loss pill (oral Wegovy) approved and expects a decision from the FDA this year. Moreover, there's data to suggest superiority over Eli Lilly's candidate, orforglipron.
Second, Novo Nordisk is trialing its next-generation weight loss drug, CagriSema, against Eli Lilly's tirzepatide in a phase 3 trial (REDEFINE 4), set for completion in mid-January.
Third, Novo Nordisk is set to release results from a phase 3 trial of semaglutide in Alzheimer's patients, scheduled for late 2025 or early 2026 -- the aim is to slow cognitive decline.
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A stock to buy
While there are definitely no guarantees, not least as CagriSema has disappointed with efficacy data previously, and according to Reuters, a Novo Nordisk executive has described the Alzheimer's trial as a "lottery," all three events offer upside potential. That potential shouldn't be easily discounted, particularly if its oral Wegovy gets approved for marketing by the FDA in 2025. As such, the stock could be of interest to more speculative investors.
