Novo Nordisk’s stock may not look all that expensive when you’re focusing on the long-term potential.
Odds are that if you hear the word “Ozempic,” you likely associate that with weight loss. It’s hard not to given all the posts on social media about users losing weight thanks to the drug. But many people may be surprised that it’s not actually approved as a weight loss treatment — regulators have approved it for diabetes. People have simply been taking it off-label because of its ability to help them lose weight.
But that’s a great example of how diverse and wide-ranging the benefits may be from not just Ozempic but other, similar glucagon-like peptide 1 (GLP-1) treatments as well. Novo Nordisk (NVO 0.34%) makes Ozempic and has another GLP-1 drug, Wegovy, which is actually approved for weight loss.
As strong as sales for these products have been of late, they could go even higher in the future.
A possible treatment for chronic kidney disease?
There is a significant need to treat chronic kidney disease in the U.S., a condition that one in seven adults has and that there’s no cure for. In a recent trial involving semaglutide, the common ingredient in both Wegovy and Ozempic, there have been some encouraging results.
In a trial that included more than 3,500 participants who have type 2 diabetes and chronic kidney disease, semaglutide reduced the risk of death and helped slow the decline in kidney function. Overall, it reduced the risk of kidney disease-related events by 24%. There were also fewer adverse events compared with the placebo group.
Novo Nordisk plans to apply for a label expansion of Ozempic this year so that it can potentially treat chronic kidney disease. If approved, it would give patients more of a reason to use the drug beyond just diabetes treatment.
As additional trials are done on semaglutide, there could be even more indications that are approved. Earlier this year the Food and Drug Administration approved Wegovy as a treatment to lower the risk of heart problems in obese or overweight adults.
The company is building out more capacity
Arguably the biggest problem for Novo Nordisk is a lack of capacity. Demand has been through the roof for Ozempic and Wegovy, and the company has been working on expanding its manufacturing capabilities. It’s a significant issue, because a lack of supply could lead to patients seeking other competing products — or worse, going through the black market, where similar-looking products may not only hurt the brand, but be fatal for users.
The company has been making efforts to bolster capacity. One way is through its parent company, Novo Holdings, which is planning to acquire Catalent for $16.5 billion. The drug manufacturer’s sites could then be sold to Novo Nordisk. In a longer-term effort, Novo Nordisk plans to invest $6 billion to make new facilities in Denmark. But that may take until 2029. In the short term, there are contract manufacturers that the company can use. Last year, it hired Thermo Fisher Scientific to help with the manufacturing of Wegovy.
During the first three months of 2024, Novo Nordisk’s net sales rose by 24% at constant exchange rates to 65.3 billion Danish krone ($9.8 billion). Wegovy led the way with revenue growth of 107%, followed by Ozempic at 43%. And with so much potential demand on the horizon, these growth rates could accelerate much higher in the years ahead.
It could still be a cheap stock to buy right now
As more indications pile up for Ozempic and Wegovy, so, too, does the potential for these drugs to generate even more in revenue and profit for Novo Nordisk in the years ahead. That means that while its P/E ratio of 47 may appear high right now, the healthcare stock’s current valuation could still look like a steal in the future.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Thermo Fisher Scientific. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.