Today's harsh treatment of Novo Nordisk's stock, contrasting the upward trends of Eli Lilly and Viking's shares.
Today's harsh treatment of Novo Nordisk's stock, contrasting the upward trends of Eli Lilly and Viking's shares.
Negative outcomes for Novo Nordisk (NVO 0.34%) on Friday proved advantageous for rivals in the weight loss drug sector, namely Eli Lilly (LLY -0.24%) and Viking Therapeutics (VKTX 1.18%). This morning, Novo announced headline results from its phase 3 trial of a new weight loss drug, CagriSema. Although the outcomes were not disappointing per se, they fell short of Novo's expectations.
As of 11:05 a.m. ET, Novo Nordisk's stock price dropped a substantial 20.8%, while Lilly and Viking stocks experienced a 4.4% increase each.
Novo Nordisk's disappointing day
Initially developed to treat diabetes, drugs such as Novo's Ozempic and Lilly's Zepbound have assumed a new role in society as popular choices for obesity management and effortless weight loss. Novo hoped to strengthen its market position with its new contender, CagriSema, which enhances the semaglutide ingredient in Ozempic with an amylin-focused drug to reduce cravings.
The goal: to overtake Ozempic's 16.1% weight loss record among patients using the drug over 68 weeks, aiming for a 25% weight loss during the same period.
Spoiler alert. Novo fell short of its target. The company's Redefine 1 phase 3 trial of CagriSema, featuring both cagrilintide and semaglutide, "achieved its primary endpoint by demonstrating a statistically significant and superior weight loss" compared to a placebo. However, the actual weight loss over the 68-week trial was 22.7%, just short of the intended 25%.
How detrimental is this news for Novo Nordisk stock?
Investors in Novo Nordisk seem dissatisfied with these results, while those in Lilly and Viking appear more optimistic. But should they be?
Although one might expect Novo to put on a cheerful front, management appears relatively unfazed.
"We are encouraged by the weight loss profile of CagriSema, demonstrating superiority over both semaglutide and cagrilintide in monotherapy in the REDEFINE 1 trial," stated Novo's Executive Vice President for Development Martin Lange, hinting that further exploration of CagriSema's potential weight loss enhancement is imminent. Given that 40.4% of participants in the REDEFINE 1 study actually achieved a 25% or greater weight loss after 68 weeks, it may be conceivable that future adjustments to the drug combination could potentially reach the desired results.
Is Novo Nordisk stock worth selling?
Meanwhile, today's substantial decline in Novo Nordisk stock prices could offer investors an unexpected second opportunity to purchase GLP-1 stocks at an affordable price-to-earnings ratio of only 29. Given a stock projected to grow earnings at a rate of better than 21% annually over the next five years, and boasting a modest 1.3% dividend yield, this valuation seems hard to fault for Novo Nordisk shares.
When considering that Lilly shares are being sold at a ratio of nearly 82 times earnings (twice as expensive), while Viking Therapeutics has yet to report earnings, making it devoid of a P/E ratio, Novo Nordisk begins to appear as the reasonable option for investing in weight loss drugs.
In what may seem insane, today just might be a favorable day to buy Novo Nordisk stock.
Amidst the market volatility, investors might consider reallocating some funds into Novo Nordisk, as its stock price dip could present an attractive entry point. With a lower price-to-earnings ratio of 29 and a promising projected growth rate, Novo Nordisk's shares may offer significant potential returns in the long term.
In light of these developments, some individuals might deliberate on whether to invest in weight loss drugs sectors and view Novo Nordisk as a compelling choice, given its more affordable valuation compared to competitors, such as Eli Lilly, with a P/E ratio nearly double as high.