Shares of weight loss and diabetes medication maker Novo Nordisk (NYSE:NVO) have slumped precipitously over the past 52 weeks. Shares are down 34% over that period as of the Feb. 13 close. The new year hasn’t provided a respite, with shares down over 8%. Shares are now trading less than 1% above their 52-week low.
This big drop raises the question: Have shares of this pharma stock become attractive? Some big-bank analysts give a resounding yes to that question. I’ll analyze key metrics from the company’s better-than-expected recent financial report, along with other important developments to give my take.
Novo Nordisk Reports Strong Q4 Revenue and Profit Growth
In Q4, revenue and net profit at Novo both grew solidly by 30% and 29%, respectively. The company’s well-known Ozempic drug, used to treat type 2 diabetes, showed moderate sales growth of 12%. However, that’s much slower when compared to the 60% growth Eli Lilly (NYSE:LLY) competing drug, Mounjaro, achieved. On the other hand, sales of Wegovy were blisteringly hot, rising 107%. This is the same drug as Ozempic, but it treats obesity.
A 329% increase in non-U.S. revenue helped achieve this enormous total growth. This is one area where Novo certainly has an advantage over Lilly. Lilly’s competing drug versus Wegovy, known as Zepbound, has yet to record any sales outside the United States. Compared to total sales growth of 26% in 2024, Novo is forecasting growth of 16% to 24% in 2025.
On the Horizon: Production Increases and the Cagrisema Dilemma
Overall, Novo has two particularly big initiatives for 2025. First is being able to supply more of the active ingredient in Ozempic and Wegovy, semaglutide. Semaglutide remains on the Food and Drug Administration's (FDA) shortage list. This has restricted growth in sales, allowing compounders like Hims Hers Health (NYSE:HIMS) to sell the product in the meantime. The FDA took Lilly's competing formula, Tirzepatide, off the list in Oct. 2024. Novo has been investing billions to ramp up production. The company has made significant strides in boosting supply. It plans to serve 30% more patients in 2025 by expanding operations.
The second task is to clarify the details about its upcoming weight loss and diabetes treatment, Cagrisema. The injectable showed just barely higher placebo-adjusted weight loss of 20.4% compared to Zepbound’s 20.1%. The results sent shares of Novo plummeting in Dec. 2024 as they failed to show significantly higher weight loss than Zepbound.
An abnormal part of the study was that patients could reduce their dose if they needed to. Curiously, patients who ended their treatment on a lower dose lost 3% more weight than those who ended on the higher dose. Many consider this counterintuitive, as higher doses often lead to higher weight loss. Novo is initiating a new trial that will start in the first half of 2025. It looks to explore how longer treatment duration and changing dosing over time could affect efficacy. Current results show that tailored dosing for each patient might boost Cagrisema's effectiveness.
Ultimately, it seems probable to me that the potential market for Cagrisema is being underappreciated. There is significant reason to believe that the drug works very well for certain patients, an angle the company can lean into. However, further results will need to come out to confirm this.
Analyst Ratings and Lower Valuation Compared to Lilly Suggest Upside
MarketBeat hasn’t tracked any analyst price target updates for Novo Nordisk since earnings. These ratings can sometimes be difficult to come by because Novo is a Danish firm. However, two updates quoted in Danish currency provide an average price target of 988 Danish kroner (DKK), approximately $136.70 USD. Compared to the stock’s 566 DKK (about $78.34 USD) price as of Feb. 13, that target implies a huge upside of nearly 75%. Currency fluctuations and other factors will cause differences in return and upside figures compared to Novo’s American Depository Receipt (ADR).
Although I see this amount of upside as optimistic, Novo’s shares do seem somewhat undervalued. Its forward price-to-earnings (P/E) ratio of 21x is around 45% lower than Lilly’s 38x. In my view, both provide reasonable ways to play in this space for different reasons. Lilly is higher growth, while Novo’s comparative valuation and depressed sentiment offer upside.