Novo Nordisk faces tough competition in obesity treatments

The theory of efficient markets. That is - put simply - the idea that prices on the stock exchange reflect all immediately available information. It is an approach that - as is well known - has been criticised in several respects. Beyond this, however, it is undeniable that the price of a share is influenced by 'news flow'. To realise this, one only has to take a look at what happened to Novo Nordisk's share price. The Danish pharmaceutical giant has left over 52% on the parterre - in dollars - over the past year. A dynamic that - together with the resignation of the ceo - has, on the one hand, caused the company's market multiples to return to 'sensible' levels; and which, on the other, is a consequence of the flow of news. In particular, that linked to the world of anti-obesity drugs.

On closer inspection, the news that has had an impact is diverse. First of all, one may recall the growing competition. The American Eli Lilly has launched - for some time now - a slimming medicine (Zepbound) on the market which is marked by better sales progress. In a recent note, Cantor analyst Carter Gould wrote how, based on available numbers, Zepbound's revenues are expected to increase by about 24% in the second quarter, while Wegovy's (manufactured by Novo Nordisk) sales could rise by 5-6%.

The dynamic would also be attributable to the greater efficacy of the US company's treatment compared to that of the European company. Eli Lilly explains that its solution allows an average weight reduction over 72 weeks of around 20.2% compared to the 13.7% guaranteed by Novo Nordisk's drug. This consideration - evidently - is not shared by the European company, which first points out that Zepbound uses higher doses of the active ingredient (Tirzepatide) and that, therefore, the comparison is of little significance. Furthermore, the Danish group - in a recent study - points out that the high-dose version of Wegovy allows a similar weight loss as Zepbound. Finally, Novo Nordisk again explains that the patient profile and specific clinical conditions may influence the results. Consequently, it makes little sense to evaluate and choose a therapy simply on the basis of absolute numbers. In short: beyond the back-and-forth, what jumps out from the current situation is precisely the increased competition in the industry. A context in which Novo Nordisk has suffered, and not a little.

But it is not just a question of competition on existing products. Novo Nordisk is aiming to create a drug that is more potent and effective than those on the market to combat obesity and type 2 diabetes. Thus, expectations were high for CagriSema. The experimental drug - in clinical trials - showed that people who used it lost on average about 20-22% of their body weight in about a year and a half. Although the numbers look good, the market expected more: a 25% weight loss target was mentioned, which only 40% of patients managed to achieve. In the face of this, investors turned up their noses and sold the stock.

That headline also suffered from another aspect: that of so-called 'coumpounded' medicines. To understand the subject, it should be remembered that in the USA, when there is a shortage of supply compared to demand, specialised pharmacies can 'blend' (compound) drugs tailored to individual patients. These - put very simply - are an unauthorised but technically legal version of the active ingredient in the drug (in this case Tirzepatide). Well: during 2023 and 2024, Novo Nordisk struggled to keep up with the demands, thus opening the door to the widespread production and sale of its 'compounded' drug. All at very low prices - often under $300 per month - compared to Wegovy's $1,300. The situation created an economic and reputational problem for the company. Of course: the FDA - in February - declared Wegovy's shortage ended, requiring the cessation of 'compounded medicines'. However, some pharmacies and online platforms continue to offer 'customised' versions of the cure, claiming that each dose is unique to the patient. Novo Nordisk has challenged these practices, accusing operators of circumventing regulations (the partnership with Hims & Hers Health has been closed). Overall, again, it is clear why the shares are struggling on the stock market.