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Should one consider purchasing Novo Nordisk's stocks?
Should one consider purchasing Novo Nordisk's stocks?

Should Investing in Novo Nordisk's Shares Be Considered?

It's been a rough patch for Novo Nordisk investors, with the shares of the cardiometabolic drug giant taking a significant hit, down over 20% in the last year. Although Novo continues to dominate the industry, new competitive developments have investors on edge. However, before dismissing this pharmaceutical powerhouse, let's delve into the reasons behind its slump and assess whether it's still a strong buy for long-term investors.

The shine has worn off

Novo is currently enjoying impressive growth, driven by its suite of effective cardiometabolic drugs, such as Wegovy, which addresses diabetes and obesity. Over the past five years, Novo's trailing-12-month revenue has skyrocketed by 109% to reach $39.3 billion.

For the company to continue this phenomenal growth, its blockbuster drugs, including Wegovy, must continue to perform well in the market. Wegovy has managed to carve out a commanding 73% share of the global market for anti-obesity medications, which includes its older drugs alongside Wegovy.

To preserve this market share, Novo can employ various strategies:

  1. Increasing R&D investments to develop new formulations and expand the drug's total addressable market
  2. Offering discounts or better pricing terms to customers, depending on their financial capacity and insurance coverage
  3. Expanding its manufacturing capabilities to ensure an adequate supply of Wegovy and meet demand better than its competitors
  4. Running new trials to directly compare the safety and efficacy of Wegovy against key competitors' drugs, such as Eli Lilly's Zepbound

The last strategy seems appealing if Novo believes Wegovy holds the edge. Unfortunately, recent clinical trial results do not support this assumption. In the direct head-to-head comparison with Zepbound, patients taking Zepbound lost, on average, 20.2% of their weight, while those on Wegovy lost 13.7% of their weight. Lilly's drug fared better on all five secondary endpoints evaluated in the study.

These mixed results cast doubts over Wegovy's effectiveness and erode investor confidence in Novo's stock.

Not all doom and gloom

Although Wegovy's performance is crucial for Novo's growth, it can still thrive without it. Wegovy's massive demand, coupled with Eli Lilly's struggles to keep up with satisfied patients, provides ample room for Novo to grow, despite the competition.

Lilly's inability to meet demand for Zepbound has prompted it to ramp up manufacturing, but Novo faces the same issues with Wegovy. Regardless of Zepbound's superior efficacy, demand is likely to outstrip the available supply.

That said, Novo should not be complacent. The competitive landscape is shifting, and assuming its pipeline candidates don't pan out, it could be facing some serious pressure in the future.

Upsides and downsides in perspective

Dismissing Novo as a long-term investment option would be premature. Despite the challenges, the company boasts a robust pipeline, multiple blockbuster drugs, and significant long-term growth potential. However, it's no longer a guaranteed long-term performer due to intensifying competition.

Long-term investors interested in Novo should recognize these risks and maintain a balanced portfolio. By appreciating the opportunities and challenges facing Novo, investors can make an informed decision about including it in their portfolio.

In light of these mixed results, some investors might consider selling their Novo shares, viewing it as an investment risk due to Wegovy's potential loss of market dominance. However, with Wegovy still commanding a significant market share and Lilly facing its own supply challenges, there may be opportunities for those who are willing to invest in Novo's finance and diversify their portfolio.

Regardless of Wegovy's performance, Novo's commitment to increasing R&D investments, offering competitive pricing, and expanding manufacturing capabilities can help sustain its growth, making it an attractive long-term investment opportunity for finance-savvy individuals who are willing to take calculated risks with their money.

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