Novo Nordisk NVO shares have lost 4.5% in the past month compared with the industry’s decline of 1.5%. The company has also underperformed in the sector and the S&P 500 in the past month, as seen in the chart below. The stock is currently trading below both its 50 and 200-day moving averages.
NVO Stock Underperforms the Industry, Sector & the S&P 500
Zacks Investment Research
Image Source: Zacks Investment Research
Novo Nordisk's stock price primarily dipped after U.S. Senator Bernie Sanders criticized the company for charging high prices for its semaglutide (GLP-1 agonist) drugs, Ozempic (for type 2 diabetes) and Wegovy (for weight management), in the United States compared to countries like Canada, Denmark and Germany. In response, Novo Nordisk's CEO, Lars Fruergaard Jorgensen, highlighted that 99% of U.S. insurance plans cover Ozempic and roughly half cover Wegovy, with more than 80% of insured patients paying less than $25 per month, and 90% paying less than $50.
Jorgensen also pointed to the role of pharmacy benefit managers (PBMs) in maintaining high drug prices. PBMs, who negotiate drug costs, have no incentive to lower list prices since their fees are tied to the size of negotiated rebates. Lowering list prices could lead to health insurers dropping the drugs from their formularies, limiting coverage. Interestingly, Senator Sanders claimed that he has commitments from certain PBMs stating they would not drop coverage of Ozempic and Wegovy if list prices were significantly reduced, and instead, they could expand coverage for these drugs.
However, short-term stock performance, such as over the past month, holds less significance for long-term investors. Instead, the emphasis should be on the company's solid fundamentals. Shares of Novo Nordisk have skyrocketed more than 340% in the past five years and the company boasts a market cap of nearly $530 billion.
Novo Nordisk, a leader in the worldwide diabetes and obesity care market, has been witnessing a stellar performance of Ozempic and Wegovy. Semaglutide has been the key driver of Novo Nordisk’s stupendous growth in the past few years.
Let’s dig deeper into the factors governing the company’s prospects to understand how to play the stock after the recent price drop.
Semaglutide - NVO’s Growth Engine
Novo Nordisk continues to be the global market leader in the GLP-1 segment with around 54% value market share, primarily on the back of its semaglutide medicines.
Wegovy is the key top-line contributor for Novo Nordisk. Despite supply challenges, Wegovy is seeing strong prescription trends and is generating impressive revenues and profits. The company is investing heavily to ramp up its production capacity to meet the growing demand. Ozempic sales are also contributing to the top line.
Wegovy’s label was expanded in the United States in March 2024 to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. The drug’s label was also recently expanded in the EU for the same indication. The company is also looking to expand the drug’s label to treat patients with obesity-related heart failure with preserved ejection fraction in the EU and U.S. markets.
However, Novo Nordisk faces serious competition from Eli Lilly LLY in this market space. Lilly has seen unparalleled success with tirzepatide, a dual GIP and GLP-1 receptor agonist, which is marketed as Mounjaro for T2D and Zepbound for obesity. While other biotech firms, such as Amgen AMGN and Viking Therapeutics VKTX, are also making rapid progress with their GLP-1-based diabetes/obesity candidates, we believe that they will take time to catch up with NVO.
NVO’s Growing Sales and Margins
Novo Nordisk has one of the broadest diabetes portfolios in the industry.The company improved its global diabetes value market share in 2023 from 31.9% to 33.8%, primarily due to market share gains in both North America and International operations.In 2023, Novo Nordisk’s GLP-1 sales in diabetes jumped 52%.
In the past five years, total revenues generated by the company surged 90.3% on a reported basis.In 2023, the company reported a net profit margin of 36%, which is the highest recorded in the past five years. During the same period, NVO’s net profit margin remained above 31%, showing consistency.
NVO’s Diversification Plans to Treat Other Indications
Novo Nordisk is actively exploring additional uses for semaglutide, including evaluating Wegovy for heart failure in diabetes and obesity patients, and Ozempic as a treatment for T2D and chronic kidney disease. The company is also studying semaglutide for nonalcoholic steatohepatitis. These efforts could expand the eligible patient base for the drug, pending approval.
Beyond diabetes and obesity, Novo Nordisk is diversifying its portfolio by developing Mim8 for hemophilia A, with plans to submit it for regulatory approval by the end of 2024. The company also recently received a positive opinion from the advisory committee of the regulatory body in the EU, recommending the approval of Alhemo (concizumab) for haemophilia A or B with inhibitors. A final decision is expected within the next two months.
NVO’s Premium Valuation, Declining Estimates
Novo Nordisk is trading at a premium to the industry, as seen in the chart below. Going by the price/earnings ratio, the company’s shares currently trade at 29.80 forward earnings, which is more than 19.08 for the industry.
NVO Stock Valuation
Zacks Investment Research
Image Source: Zacks Investment Research
Earnings estimates for 2024 have declined from $3.19 to $3.07 per share over the past 60 days. During the same time frame, Novo Nordisk’s 2025 earnings estimates have decreased from $4.34 to $4.18 per share. The declining estimates are most likely due to the guidance cut announced by the company on its second-quarter conference call.
NVO Estimate Movement
Zacks Investment Research
Image Source: Zacks Investment Research
The stock’s return on equity on a trailing 12-month basis is 87.43%, which is higher than 28.44% for the large drugmaker industry, as seen in the chart below.
NVO Return on Equity
Zacks Investment Research
Image Source: Zacks Investment Research
Should You Invest in NVO Stock?
Novo Nordisk, currently carrying a Zacks Rank #3 (Hold), has immensely boosted shareholder value in the past five years. Despite the accusations regarding over-inflated drug prices causing the stock price to slide, the company's expanding market share and revenue growth signal strong long-term potential, driven by sales of Wegovy and Ozempic. Novo Nordisk has shown intent in addressing this issue stating that it will work with PBMs and the committee to investigate the possibility of price cuts while remaining skeptical over PBMs, making the drugs more affordable.
NVO has also been heavily investing in manufacturing to meet the rising demand for Wegovy, although it has not been as successful as its arch-rival, Lilly, yet. The updated sales outlook for 2024 indicates higher full-year expectations for both North America and International operating units. Novo Nordisk is also looking to expand the indications for Wegovy and Ozempic to increase patient eligibility, which, if approved, would further boost revenues. The company is also developing new obesity treatments to stay competitive, especially in the U.S. market, which holds significant growth potential.
Thus, we can conclude that the temporary decline in the stock price should not bother long-term investors. Such opportunities make for a lucrative entry point for potential new investors. Investors who already own the stock should continue to hold it for long-term gains.
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