News that a business is slashing prices isn't great if you're worried about its margins and overall profitability. But offering reduced prices can, however, help with winning market share. As a result, it's not always obvious whether a move to reduce prices can be beneficial for a stock in the long run.
Pharmaceutical giant Novo Nordisk (NVO 1.89%) is planning to drastically reduce the list prices of its popular GLP-1 treatments, including Ozempic and Wegovy, next year. The company has been facing growing competition, and investors may be concerned that this is confirmation of its struggles in the hotly competitive weight loss market.
However, here's why I think that this can prove to be a great move for Novo Nordisk in the long run, and why investors may benefit from it.
Image source: Getty Images.
Up to a 50% cut coming next year
Starting in 2027, Novo Nordisk plans to make its popular GLP-1 drugs far more attractively priced. At $675 per month, the list price for its GLP-1 medications will be up to 50% lower for patients; Wegovy, which is approved for weight loss, currently has a list price of $1,349. For people who have high deductibles, this can make the treatments far more accessible. The company, however, is likely going to offset some of the price decline by reducing rebates.
This comes as there is increased pressure from the government to lower drug prices. And it could intensify the competition with key rival Eli Lilly, whose weight loss drug Zepbound has been helping people achieve greater weight loss than Wegovy. At around $1,100 per month, Zepbound's list price is currently a bit lower than Wegovy's.
NYSE: NVO
Key Data Points
Why this could help Novo Nordisk's stock
By offering a lower price for Wegovy and other GLP-1 drugs, Novo Nordisk may be in a better position to take back market share from Eli Lilly, or at least, give its current patients less of a reason to consider switching. Market share can be key in the weight loss market as patients need to take GLP-1 drugs on a continuous basis, otherwise there is the danger that they can regain the weight they lost while on the drugs. And if there's a bit of a financial incentive to use Wegovy, that can help grow its market share.
Novo Nordisk's problem these days is growth, as the company is forecasting potentially a double-digit decline for the year ahead. If the company can find a way to get back to generating strong numbers, that can be key to winning over growth investors again. It has strong profit margins of around 33% and there's room for the company to sacrifice some profit in exchange for market share. And while a 50% decline in price may sound significant, with lower rebates, the impact likely won't be so drastic.
If the price reductions end up resulting in stronger growth prospects for Novo Nordisk, it could be a big win for shareholders. The stock is trading at less than 11 times its trailing earnings, and it could prove to be a steal of a deal right now.
