The past 18 months have been challenging for Novo Nordisk (NVO +1.42%). Clinical setbacks, worse-than-expected financial results, and a loss of market share in its most important therapeutic area have all contributed to a significant stock price decline over this period. Is the bleeding over?
Recent regulatory developments in the U.S. jolted Novo Nordisk's share price by as much as 8% in one day. Let's find out what happened and whether Novo Nordisk is worth investing in.
The first approval of its kind
Novo Nordisk generates the majority of its revenue from its GLP-1 products, which are approved for the treatment of diabetes, weight management, and several other conditions, including reducing the risk of major cardiovascular events. One of the company's most famous brands is Wegovy, an anti-obesity medicine. Wegovy is administered subcutaneously once a week.
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However, since many patients don't like needles, pharmaceutical leaders have been looking to develop weight loss therapies that can be taken orally. Novo Nordisk already had an oral GLP-1 on the market: Rybelsus. But it isn't indicated for obesity.
The good news is that the Denmark-based healthcare giant has just earned approval from the U.S. Food and Drug Administration for an oral version of Wegovy. It is now the first oral GLP-1 approved for weight management.
Why Novo Nordisk's shares jumped
Oral pills for weight loss could attract a meaningful number of patients. Besides overcoming the psychological barrier of subcutaneous injections, oral pills are easier and cheaper to manufacture at scale for pharmaceutical companies. That means they will have the ability to reach more patients, perhaps at a lower cost, which may also translate to more third-party coverage. These dynamics could significantly expand the entire weight management market.
Novo Nordisk now has a first-mover advantage here, leveraging a well-known brand name that patients will recognize. With the company losing ground in this market to its biggest competitor, Eli Lilly, oral Wegovy will be a welcome addition to its portfolio that could help it recapture some lost ground, boost top-line growth, and bounce back.
NYSE: NVO
Key Data Points
Some factors to consider
Even though this is a win for Novo Nordisk, it's worth pointing out that Eli Lilly isn't too far behind. The company recently announced that it had submitted an application to the FDA for orforglipron, which is a weight loss pill that performed well in clinical trials. One notable result is that orforglipron helped patients keep losing weight after they switched from injectable anti-obesity therapies.
What's more, orforglipron was granted a Commissioner's National Priority Voucher, which will help expedite the review of the medicine to one to two months instead of up to a year. Unless there is a problem with the application, it should earn approval by March.
It's worth noting that Novo Nordisk launched Wegovy more than two years before Eli Lilly launched its own weight management therapy, Zepbound. However, the latter now generates higher sales. So, getting to market first clearly isn't everything.
Is Novo Nordisk stock a buy?
Several recent developments could help Novo Nordisk recover from its recent struggles. Oral Wegovy is one of them. The company has earned other important label expansions for this therapy. For instance, it is now indicated to treat metabolic dysfunction-associated steatohepatitis. Analysts estimate that this market could add over $1 billion in sales to Wegovy's annual total.
Furthermore, Novo Nordisk has just filed for approval of CagriSema, a next-generation weight loss medicine that outperformed semaglutide (the active ingredient in Wegovy) in clinical trials. It also has several candidates in mid- and late-stage studies.
Novo Nordisk should remain one of the leaders in the fast-growing weight loss market, and the company's shares are trading at just 13 times forward earnings, compared to the average of 18.3 for healthcare stocks. All good reasons why the Denmark-based pharmaceutical leader is worth investing in at current levels.
