Shares of Novo Nordisk (NVO 1.84%) sank 20% this week, according to data from S&P Global Market Intelligence. The drugmaker behind the weight-loss drug craze is in the midst of a terrible drawdown -- 75% as of this writing -- due to a bad trial for its new weight-loss drug in a head-to-head battle with Eli Lilly. Plus, the company announced additional price cuts for its weight-loss drug Wegovy in 2027, due to pressure from the U.S. government.
Here's why Novo Nordisk stock fell again this week, and whether it is a buy right now.
NYSE: NVO
Key Data Points
Falling behind the competition and more cost cuts
Novo Nordisk has a new weight-loss drug called CagriSema that it hopes will be more effective than its initial blockbuster, Wegovy, in helping patients lose weight. To prove its might, Novo Nordisk conducted a trial to compare the performance of CagriSema vs. Eli Lilly's Zepbound. However, the trial results were not in Novo Nordisk's favor, with patients who used Zepbound losing slightly more weight than those who used CagriSema.
This difference in efficacy is why Eli Lilly's stock has soared while Novo Nordisk's has faltered. In the last three years, Eli Lilly's revenue has grown by 135% compared to 77% for Novo Nordisk, with Novo Nordisk's revenue growth beginning to stagnate at the same time that Lilly's is accelerating. The two-horse race in weight-loss drugs is currently dominated by Eli Lilly, leaving Novo Nordisk shareholders in a painful position.
On top of the intense competition, Novo Nordisk is getting battered by a recent announcement that it will again cut prices on its weight-loss drug portfolio in the United States in 2027. The cuts could reach 50% to make U.S. customers and the government happy, and the potential loss of revenue could be staggering.
Image source: Getty Images.
Is Novo Nordisk stock a buy?
Novo Nordisk stock now trades at a price-to-earnings ratio (P/E) approaching 10, which is much lower than Eli Lilly's. However, investors likely see the writing on the wall regarding market share losses and price cuts for the business. Unless you are a believer that Novo Nordisk will leapfrog Eli Lilly again, the stock is likely one that you should avoid buying for your portfolio.
