Novo Nordisk’s stock may look expensive but not if you focus on the long term.
Ozempic has become the big name associated with weight loss. Although there are other competing drugs which could take market share from it in the future, the diabetes treatment has become well known on social media for its ability to help people lose weight. And that success has played a big role in Novo Nordisk (NVO 0.69%) becoming one of the most valuable healthcare companies in the world.
But as well as things are going for the company, this may still only be the beginning for Novo Nordisk, Ozempic, and Wegovy (its approved weight-loss treatment). Here’s why.
Novo Nordisk is testing higher doses of semaglutide
Semaglutide is the active ingredient in Ozempic and Wegovy. And that’s why the two products are highly similar; Wegovy is essentially just a higher-dose version, and it is approved for weight loss.
Novo Nordisk, however, is currently involved in clinical trials for even higher doses of semaglutide. This is key because if the doses are higher, the potential weight loss that is achievable could be greater. Both Ozempic and Wegovy are weekly injections, but Ozempic is a 2 mg dose, whereas Wegovy’s maximum dosage is 2.4 mg. People using the drugs can lose, on average, about 15% of their body weight.
The company is looking at doses of semaglutide as high as 16 mg, which suggests that even more weight loss may be possible. On its most-recent earnings call, Executive Vice President of Development Martin Lange didn’t offer too many details but was optimistic on the early results of the “exploratory phase 2 trial” and stated that “both response on weight loss was observed, and the higher doses of semaglutide appear to have a safe and well-tolerated profile in line with previous semaglutide trials.”
More catalysts could still be coming for Novo Nordisk
Already up around 38% this year, Novo Nordisk’s stock has been among the better healthcare stocks to own. But there’s reason to be optimistic that more growth opportunities may be ahead for the business.
A higher-dose treatment of semaglutide is just one example. But there is also an oral treatment (i.e., a pill) which investors should keep a close eye on — amycretin; it may be an even better option. After just 12 weeks of using amycretin, patients lost 13% of their body weight. At that stage, Wegovy, by comparison, helped people lose just 6%. The caveat here is that this is based on just an early phase 1 trial; the promising drug candidate still has a long way to go before it has any hope of obtaining approval.
Novo Nordisk’s growth rate has dipped recently, but it has still been strong at more than 20%.
NVO Revenue (Quarterly YoY Growth) data by YCharts.
The company has been looking at ways to expand its manufacturing capabilities, which could lead to stronger sales numbers as it has been dealing with shortages for both Ozempic and Wegovy.
With many potential catalysts still on the horizon for the business, there’s definitely room for the company’s valuation to rise, especially with Novo Nordisk being a highly profitable business, earning profit margins in excess of 35% over the trailing 12 months.
Novo Nordisk remains an excellent stock to buy
With Novo Nordisk’s market capitalization of close to $640 billion, investors are paying roughly 50 times earnings for a piece of the stock today. But if the company continues to generate strong growth while also achieving high-profit margins, its valuation will improve significantly over time.
In the short run, there’s definitely the risk that investors will pay a lower-earnings multiple for the business, and there could be some weakness in the share price. But with so much potential runway for the company’s revenue growth to accelerate, it’s definitely not too late to invest in Novo Nordisk if you plan on hanging on for the long haul.