Few companies garner as much reliable attention as Novo Nordisk (NVO -0.32%) does these days. With a bull market coinciding with a historic run of growth for the Danish pharmaceutical giant related to its GLP-1 drugs, it's no surprise that its share prices have nearly doubled over the last three years.
But with such strong performance lately, can the stock be as good a purchase for investors going forward? To find out, let's take a look at what it has planned.
There's no shortage of reasons to buy here
Novo Nordisk is among the fastest-growing big pharma competitors, which makes it easy to formulate a long list of reasons to buy its stock. In the third quarter, normalized diluted earnings per share (EPS) rose by 27.2% compared to the same quarter a year prior, reaching $0.90; trailing-12-month (TTM) revenue of $39.3 billion is also up by 16.7% year over year.
Driving Novo Nordisk's growth is its control of 65% of the global market for GLP-1 drugs, which treat conditions like type 2 diabetes as well as obesity. Its blockbuster GLP-1 medicines, Ozempic and Wegovy, are household names and are in such hot demand that shortages were common for quite some time. Even the presence of powerful direct competitors like Zepbound from Eli Lilly hasn't caused the growth of the segment to slow yet.
Furthermore, the company is performing research and development (R&D) work on the active ingredient in those two drugs, a molecule called semaglutide: It might also be useful to treat a diverse set of conditions with large treatment markets, including Alzheimer's disease and metabolic dysfunction-associated steatohepatitis (MASH), along with others like cardiac risk in people with obesity or diabetes.
Some of those efforts appear to be most of the way toward success already. Per an update from a phase 3 clinical trial in its MASH program published on Nov. 1, semaglutide is fairly effective at controlling and reversing some of that disease's most dangerous effects. It'll take a while longer for the business to conclude the trials and apply for approval from regulators. But if it does, the odds are good that the drug's addressable market will increase substantially, enabling it to squeeze even more earnings out of its considerable investments in manufacturing capacity.
As if that weren't enough, its pipeline has a mixture of early-, middle-, and late-stage programs attempting to treat obesity using approaches other than semaglutide alone. That means that it's very likely to maintain its large market share in the obesity drugs market for many years to come. And given that obesity care could be the largest pharmaceutical drug market ever -- some estimates are that it'll reach a size of around $100 billion by 2030 -- being well-positioned there is a big part of the narrative for why Novo Nordisk's stock is worth buying.
Conditions are getting less favorable
As favorable as Novo Nordisk's prospects for growth are today, there are a couple of reasons to suspect that it won't have as easy a time over the next few years as it did over the last few.
Competition in its core markets is heating up. It isn't the only game in town for anti-obesity medicines or drugs for type 2 diabetes, and the playing field is almost certainly going to become a lot more crowded soon. Eli Lilly is the biggest threat, given its highly effective drugs and massive pipeline of both novel and follow-on programs. But biotechs like Viking Therapeutics or big pharmaceuticals like Amgen could also be a barrier to its ongoing success if they can produce medicines with superior efficacy or tolerability.
Another potential challenge is the stock's valuation. Its price-to-earnings (P/E) multiple of 34 doesn't raise any big alarms or suggest a massive overpricing. However, if hype about weight loss drugs surges once again, or if its earnings encounter a headwind due to fighting against new market entrants, that could easily change. Then it could be a matter of a bad quarter or two sending the stock spiraling down.
At present, Novo Nordisk is still unambiguously a stock that's worth purchasing and holding for years to come. Just keep an eye on its playing field, and on how its earnings hold up as the competition gets fiercer. I doubt it would be worth selling the stock at that point, but it might be worth waiting for a pullback before buying shares at a price it could struggle to sustain.
