Why Is Everyone Talking About Novo Nordisk Stock?

Novo Nordisk's (NVO 1.75%) leading medications have been hot discussion topics for years. Many Americans might not recognize the Danish pharmaceutical company's name, but by now they've at least heard tell of its leading products: Wegovy, approved to treat obesity, and its sibling Ozempic, indicated for diabetes. Wegovy in particular is the subject of much talk because it offers a relatively easy way to lose weight.

Despite the clear appeal of Novo Nordisk's famous drug, however, the stock hasn't been popular of late. Let's explore why, and determine if this makes the company's stock a buy at the moment.

Cluster headache

Novo Nordisk's big challenge these days can be summed up in a single word: competition.

Wegovy has been a hugely popular treatment since the Food and Drug Administration (FDA) approved it for weight loss in mid-2021. On top of that, it was the first GLP-1 medicine to get the regulator's nod for obesity, and particularly in the pharmaceutical world, being a first mover is quite the advantage.

But with a product that quickly garnered a lot of attention, it was inevitable that other drug developers would concoct their own competitors. Enter American healthcare giant Eli Lilly, which in November 2023 brought its own obesity jab to market following FDA approval of Zepbound (related to its diabetes jab Mounjaro, as Wegovy is to Ozempic).

The American company plowed its considerable resources into bringing Zepbound to pharmacy shelves, and marketing it aggressively. Not surprisingly, this effort has been a success. In terms of sales, Zepbound recently overtook Wegovy, with nearly $3.4 billion of sales in the second quarter against Wegovy's take of slightly more than $3 billion.

As if Eli Lilly wasn't enough of a challenge, Novo Nordisk also has to cope with third-party compounders (i.e., entities that make custom medicines). Weight loss drugs were so hot that the FDA declared in 2022 there was a shortage of semaglutide (Wegovy/Ozempic's foundational molecule).

To address the situation, the regulator allowed compounders to mix the molecule and sell the medicine. The shortage was declared at the end of February, with compounders ordered to halt production within months.

Easier said than done, however; there seem to be legal gray areas inside which compounders feel they can continue to make the drug. So they remain a headache for the Danish company.

Tirzepatide, the foundational molecule of Eli Lilly's Zepbound and Mounjaro, was also declared to be in shortage by the FDA. However, it rescinded this designation, roughly two years after imposing it, in December 2024.

With these headwinds buffeting it, Novo Nordisk has dialed down expectations for its performance. In mid-summer, it reduced its guidance for full-year sales growth to 8% to 14%. While that would be the envy of many a healthcare company, it's significantly down from the previous forecast of 13% to 21%. It also reduced its growth guidance for operating profit. Operationally, it announced in mid-September it was reducing its workforce by around 9,000 people.

Putting up a good fight

Yet, Novo Nordisk is a veteran company that's been on the scene for many decades, and has contended with difficulties before. It's fighting back against the compounders, disclosing in August that it has filed lawsuits in the U.S. against 14 entities concocting bespoke versions of semaglutide.

Meanwhile, Wegovy seems to be matching up well against Zepbound, at least in the lab. A recent head-to-head, real-world study conducted by Novo Nordisk favored the former.

The company found that Wegovy "showed a significant 57% greater reduction in the risk of heart attack, stroke or death from any cause, in people with overweight or obesity and cardiovascular disease."

GLP-1 drugs have shown notable promise in treating indications other than diabetes and obesity. While that head-to-head study has its caveats, it does put Wegovy in a comparatively better light than its upstart rival.

On top of that a phase 3 trial of Eli Lilly's investigational weight loss pill orforglipron yielded disappointing results, placing the company another step behind in the Great Obesity Drug Race.

These developments are recent, and I feel they haven't been properly priced into Novo Nordisk stock yet (as opposed to the negative developments). The stock trades at a forward P/E of less than 13, which seems rather low given the still-robust growth of Wegovy (which saw a 67% year-over-year jump in sales).

In other words, the stock is looking undervalued these days, so in my mind it's definitely a buy candidate.