The biggest talking point in the pharmaceutical industry at the moment revolves around treatments known as glucagon-like peptide-1 (GLP-1) agonists. GLP-1 agonists are used to treat diabetes and chronic weight management, although research suggests these medications could have other applications in areas such as sleep apnea, kidney disease, and cardiovascular complications.
At the moment, the hottest GLP-1 treatment is Ozempic. Danish pharmaceutical leader Novo Nordisk (NVO 0.15%) is the brains behind Ozempic, as well as sibling GLP-1 medications including Wegovy, Rybelsus, and Saxenda. You'd think with such a robust lineup of options surrounding one of healthcare's biggest opportunities, shares of Novo Nordisk would be soaring.
However, this is far from the case. I'm going to break down why a recent piece of news from Novo Nordisk caused the stock to tank. Moreover, I'll explore if now is an opportunity to buy the dip, or run for the hills.
What happened with Novo Nordisk stock?
On Dec. 20, Novo announced results from a phase 3 clinical trial surrounding one of its new GLP-1 candidates, called CagriSema. The name CagriSema is simply an amalgamation of the two primary ingredients in the drug: cagrilintide and semaglutide. Of note, semaglutide is the leading ingredient in Ozempic, Wegovy, and Rybelsus. Per the results of the study, patients who took CagriSema reached an averaged weight reduction of up to 22.7%.
As of Dec. 30, shares of Novo has declined by nearly 17% following the announcement of the CagriSema study. Clearly, investors were not pleased with the outcome of this trial.
Why is this development important?
You're probably wondering why investors reacted the way they did following Novo's latest clinical update. In my eyes, there are two main reasons:
- Novo's management had set a benchmark of 25% average weight reduction for the CagriSema study. As mentioned, the entire population of patients taking CagriSema only experienced about a 23% reduction in weight. It is important to note, however, that roughly 40% of patients "reached a weight loss of 25% or more."
- The second reason I think investors were spooked by the CagriSema results is related to a recent study published by Novo's top rival in the weight loss space, Eli Lilly. Lilly is the maker of GLP-1 treatments Mounjaro and Zepbound. For comparison’s sake, Mounjaro is essentially Lilly's answer to Ozempic, while Zepbound is the company's response to Wegovy. In a study published on Dec. 4, Lilly found that patients taking Zepbound experienced an average weight reduction of 20% versus those who took Wegovy reached an average weight loss of roughly 14%. When taking these figures into account, there's an argument to be made that CagriSema is not superior to Zepbound, leading some investors to question the strength of Novo's clinical pipeline.
Image source: Getty Images.
Is Novo Nordisk stock a buy right now?
On the surface, the results from the CagriSema trial appear underwhelming. But as I often encourage investors to do, it's important to zoom out and consider the bigger picture.
In a study from 2021, patients taking semaglutide experienced an average weight reduction of 14.9% over the course of a 68-week trial period. So even though CagriSema fell short of its goal in the phase 3 trial, there's an argument to be made that it is still a stronger treatment when benchmarked against semaglutide (i.e., Wegovy and Ozempic).
To me, I see the precipitous sell-off in Novo stock as emotional, panic-driven behavior. At the end of the day, I think CagriSema will become a blockbuster drug for Novo in the long run. For now, the company simply needs to go back to the drawing board and tweak some of its research and development (R&D) protocols in order to improve CagriSema's efficacy before it reaches approval from the Food and Drug Administration (FDA).
Right now, Novo stock is trading at a forward price-to-earnings (P/E) multiple of 22.5 -- its lowest level in well over a year. I think now is a terrific opportunity to scoop up shares of Novo on the dip and lower your cost basis if you're an existing investor, or initiate a position if you've been following the company for a while.
All told, Novo's long-term thesis still holds up, and I think the company will remain a leader in the GLP-1 space for years to come.
