Two of my favorite stocks remain Eli Lilly & Company (LLY) and Novo Nordisk A/S (NVO), thanks to their GLP-1 weight loss drugs. Today, I want to draw your attention in particular to Nordisk, which reported results on Jan. 31.
NVO shares have been hitting record highs, as the Danish pharma company’s blockbuster weight-loss drugs drove a massive surge in sales and profits last year. Novo Nordisk reported that sales climbed 36% to $33.7 billion in 2023, while profits rose to $12.14 billion, or $2.70 per share.
During the fourth quarter alone, sales of its diabetes drug Ozempic grew 85% from the prior year in constant currency terms, while sales of its obesity drug Wegovy jumped 311%.
Novo Nordisk CEO Lars Fruergaard Jørgensen said on the Q4 conference call that he was “very pleased with the strong performance in 2023, reflecting that more than 40 million people are now benefiting from our innovative diabetes and obesity treatments.”
While management projected on the call that revenue could grow by as much as 26% this year, and operating profit by up to 29% at constant exchange rates, I believe this guidance will turn out to be far too conservative.
Will GLP-1 Achieve “Wonder Drug” Status?
In fact, there could be much more growth in store, as GLP-1 treatments prove to be effective in tackling diseases beyond diabetes and obesity. There's potential in reducing the impact of cardiovascular ailments, fatty liver disease, chronic kidney disease, sleep apnea, and Alzheimer’s, too.
Novo Nordisk hopes that trial results published in November showing Wegovy cut the risk of death by 18% for patients with cardiovascular disease will encourage health systems and insurers to pay for the treatment (the risk of heart attack was lowered by 28%).
And you can now add depression to the growing list of chronic diseases that GLP-1 medicines might alleviate. A study found that signs of improved mental health are showing up in the health records of 4 million people who take GLP-1s, such as Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound.
Of course, clinical studies are needed to confirm and understand the effect. If the trials data bear out, the potential for these drugs to address not just physical, but mental health, it will put even more pressure on insurers to cover the costs of the meds.
Novo Nordisk Answers the Bears
The bears on Novo Nordisk like to point out the drugmaker has struggled to keep up with demand for both Wegovy and Ozempic, which share the same active ingredient in semaglutide.
The company announced $8.7 billion in investments last year to beef up its manufacturing capacity. And it just made another move in raising its production capacity.
On Feb. 5, Novo Nordisk agreed to acquire three manufacturing sites for $11 billion. The purchase of the three sites was part of a three-way transaction in which Novo Holdings, the company’s controlling shareholder, agreed to buy U.S. drug manufacturer Catalent (CTLT) for $16.5 billion. As part of the transaction, Novo Holdings agreed to sell three of Catalent’s manufacturing sites to Novo Nordisk. Catalent specializes in “fill-finish” operations - the final stage of manufacturing drugs.
The second point the bears raise is that a lot of competition is coming into the weight loss sector, such as Eli Lilly.
But here, it could be argued that Novo Nordisk has an advantage the bears are missing - a pill that helps people lose weight without the drawbacks of an injection. In a study, people taking the pill alongside diet and exercise counseling lost about 17% of their body weight over 68 weeks, according to test results released last year. The medicine contained 50 milligrams of semaglutide - about 20 times as much as in the strongest dose of the weekly Wegovy injection.
A weight-loss pill is the next frontier in obesity treatment, and could be a mega-blockbuster, generating many billions in revenue. Such a pill would be a milestone for a market that Bloomberg Intelligence analysts estimate will reach $80 billion by 2030.
At the moment, there are two reasons why Novo Nordisk cannot launch the drug. The first is obvious; it would endanger its existing blockbusters - Wegovy and Ozempic.
The other problem is that the pill requires far more of the same active ingredient, semaglutide, and Novo already can’t make enough of it to meet demand.
NVO Stock Is a Strong Buy
Of course, Novo Nordisk is a lot more than a diet drug company.
Don’t forget that the company is the global powerhouse in diabetes treatment, a $66 billion market in 2023. As a pioneer in diabetes care, Novo has been in the business for over 85 years. Around three-quarters of its $34 billion global sales are generated through the company's diabetes care business.
As of the end of 2023, the company had a 33.8% share of this market, up 190 basis points compared to the end of 2022. It also had a 54.8% share of the GLP-1 sector and a 43.9% share of the insulin segment.
Plus, valued at over half a billion by market cap, Novo Nordisk has now edged out luxury conglomerate LVMH (LVMUY) to take over the mantle of Europe's most valuable company.
NVO stock is a strong buy anywhere under $135 a share.
