Once a fast-growing pharmaceutical giant, Novo Nordisk (NVO +0.59%) has felt the effects of gravity over the past 18 months. The company's shares are down by more than 60% since early July 2024. One reason behind the company's terrible performance is that it has faced clinical setbacks for otherwise promising candidates within its core therapeutic area.
The company recently announced yet another clinical failure -- this time, for its renowned compound, semaglutide, the active ingredient in medications such as Wegovy and Ozempic. Novo Nordisk's shares fell significantly -- by as much as 10% in one day -- following these developments, although they have recovered since. Is this bad news a good reason to finally give up on Novo Nordisk?
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A tough nut to crack
Novo Nordisk was hoping semaglutide could help treat Alzheimer's disease (AD), a condition that affects millions of patients globally with few effective treatment options. With a worldwide aging population, this is a problem that's only going to get worse. There is, therefore, a high unmet need here, one that Novo Nordisk was hoping to address. Alas, it doesn't look likely to do so -- at least not with semaglutide.
The Denmark-based drugmaker reported that in a pair of phase 3 studies that lasted two years and enrolled a combined 3,808 patients with dementia due to AD, semaglutide did not confer a clinical benefit over a placebo. It's worth pointing out that developing an effective medicine in this area was always going to be challenging for Novo Nordisk. Over the past two decades, the overwhelming majority of attempts have been failures, so much so that AD has been dubbed the graveyard of experimental drugs.
Even some of the very few clinical and regulatory successes in this area have mixed records. For example, Aduhelm, developed by Biogen and Eisai, was approved by the U.S. Food and Drug Administration, despite an outside panel of experts strongly recommending against it. The result? Physicians and hospital systems refused to prescribe the medicine despite its approval, and the team of Biogen and Eisai eventually discontinued it.
Had semaglutide succeeded in AD, it would have been a boost to the compound's prospects. However, a failure here is what investors should have expected, and it changes little about the pharmaceutical giant's prospects.
NYSE: NVO
Key Data Points
Some recent successes
After semaglutide did not prove effective in AD, Novo Nordisk recorded some meaningful clinical and regulatory progress. For instance, the company requested approval for a higher dose of Wegovy in the U.S.
This HD version of Novo Nordisk's famous weight management medicine resulted in an average weight loss of 20.7% over 72 weeks, compared to 17.5% for those who took the currently approved version. That's a meaningful difference and would help Wegovy better compete with Eli Lilly's Zepbound, which is currently stealing its market share.
Novo Nordisk also recently announced the success of a phase 2 clinical trial for its next-generation anti-obesity therapy amycretin, which is currently being investigated in late-stage studies. However, the successful completion of mid-stage trials in Type 2 diabetes sets the stage for potential approvals in this large market.
This follows other important developments for the company. It's still awaiting approval for an oral version of Wegovy, which should help expand its access, as oral pills are easier, cheaper, and faster to manufacture. Other next-gen therapies, such as CagriSema, should eventually help expand the company's lineup and boost sales and earnings.
Is Novo Nordisk a buy?
Besides clinical setbacks over the past 18 months, Novo Nordisk has also dealt with unimpressive (by its standards) financial results. It makes sense that the stock has fallen, but at current levels, Novo Nordisk could be a steal.
The company's mid- and late-stage pipelines, especially for GLP-1 programs, looks highly promising. It should add a couple of brand-new products within the next few years. Meanwhile, it's still growing its revenue at high-single-digit percentages -- or slightly more -- which is a robust pace for a pharmaceutical giant.
Lastly, Novo Nordisk offers a strong dividend program, including an attractive forward yield of 3.5%. All these factors (and more) make Novo Nordisk's shares a buy, despite the AD-related clinical setback.
