Novo Nordisk’s obesity-drug premium just went poof.
Last month, the company’s blockbuster dreams for its latest weight-loss drug, CagriSema, crumbled after disappointing trial results.
Investors panicked and sold the stock, wiping out more than a jaw-dropping $100 billion in market value. For context, that’s like losing the GDP of Kenya and some change.
That’s quite a fall from grace for Europe’s largest company.
But Wall Street seems to think the market massively overreacted. LSEG data tells us that two-thirds of analysts covering the stock are pounding the table for investors to buy, with UBS even upgrading the stock to “buy,” calling the selloff “overdone.”
The data backs it up: valuations are now lower than before the Wegovy hype even began. Check out this chart: Novo Nordisk stock is on clearance.
Still the one
Novo is still seen as the best play in the booming obesity drug market. UBS analyst Jo Walton, who says that the market is in its infancy, says that the stock is a “pure play investment case” that should gain 25% this year.
The average expectation of all the other analysts is a whopping 58% rally over the next 12 months. With valuations at bargain-basement levels, the risk/reward ratio looks pretty sweet, no doubt.
Morgan Stanley says the global market for obesity drugs could balloon to as much as $144 billion by 2030. Sales of branded obesity drugs stood at only $6 billion in 2023, with Eli Lilly and Novo Nordisk leading the charge.
Morgan Stanley’s European Pharmaceuticals team says demand for these medicines could be turbocharged if they prove effective in treating a broad range of obesity-related health issues.
Read more: Novo’s new weight-loss drug data makes the stock thinner
The risks are real
But not everyone is buying into the recovery narrative. First, there’s Lilly –– a stronger rival with a much more advanced pipeline.
It is Novo’s most formidable rival, which has a potential super weapon in Orforglipron, an oral obesity drug. A cheaper and more scalable option that could completely flip the game should there be strong late-stage data coming through.
And it’s not just Lilly. At least 16 new players are gearing up to enter the race.
Read more: #HotStox: Eli Lilly must wait to join trillion-dollar club
Jefferies is not convinced either. It calls Novo its least preferred European pharma stock, citing the risk of lower profits in the next few years and erosion of margins in the US.
So, is Novo Nordisk really “just another pharma stock” now? Most of Wall Street begs to differ, but even the optimists are treading cautiously.
If you’re betting on obesity drugs reshaping the world, Novo might still be your horse. Just know this: the race is getting crowded, and Lilly is close behind.
Edited by Ankush Chibber. If you have any tips, ideas or feedback, please get in touch: talk-to-us@moniify.com
