Novo Nordisk faces stiff competition in the obesity treatment market
The share price has fallen sharply and is no longer expensive. Following a series of disappointments, the market is now awaiting new, more effective drugs
Key points
The efficient market hypothesis. That is – to put it simply – the idea that stock market prices reflect all immediately available information. This is an approach which – as is well known – has been criticised on several grounds. That said, however, it is undeniable that a share’s price is influenced by the ‘news flow’. To see this, one need only look at what has happened to Novo Nordisk’s share price. Over the past year, the Danish pharmaceutical giant has lost more than 52 per cent of its value – in dollar terms. This trend – coupled with the CEO’s resignation – has, on the one hand, brought the company’s market multiples back to ‘reasonable’ levels; and, on the other, is a direct consequence of the news flow. In particular, that relating to the world of anti-obesity drugs.
Competition
On closer inspection, there are several factors that have had an impact. First and foremost is the growing competition. The US company Eli Lilly launched a weight-loss drug (Zepbound) some time ago, which has seen stronger sales growth. In a recent note, Cantor analyst Carter Gould, wrote that, based on the available figures, Zepbound’s revenue is expected to rise by around 24 per cent in the second quarter, whilst sales of Wegovy (manufactured by Novo Nordisk) could increase by 5–6 per cent.
This trend can also be attributed to the greater efficacy of the US company’s treatment compared with that of the European firm. Eli Lilly explains that its treatment results in an average weight loss of around 20.2 per cent over 72 weeks, compared with the 13.7 per cent achieved by Novo Nordisk’s drug. This view is – evidently – 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 not particularly meaningful. Furthermore, the Danish group – in a recent study – points out that the high-dose version of Wegovy results in weight loss similar to that of Zepbound. Finally, Novo Nordisk also explains that patient profiles and specific clinical conditions can influence the results. Consequently, it makes little sense to evaluate and choose a treatment based solely on absolute figures. In short: beyond the back-and-forth, what emerges from the current situation is precisely the increased competition in the sector. A context in which Novo Nordisk has suffered, and not insignificantly.
New solutions
But it is not just a matter of competition over existing products. Novo Nordisk aims to develop a drug that is more potent and effective than those currently on the market for treating obesity and type 2 diabetes. Consequently, expectations for CagriSema were high. The experimental drug – in clinical trials – showed that people who used it lost on average around 20–22 per cent of their body weight in about a year and a half. Although the figures look promising, the market had expected more: there had been talk of a 25 per cent weight loss target, which only 40 per cent of patients managed to achieve. In light of this, investors turned their noses up at the stock and sold it off.
Pharmacies
That stock has also suffered due to another factor: so-called ‘compounded’ medicines. To understand this issue, it is worth noting that in the US, when supply falls short of demand, specialist pharmacies can ‘compound’ medicines tailored to individual patients. Put very simply, these are unauthorised but technically legal versions of the active ingredient found in the medicine (in this case, tirzepatide). Well, during 2023 and 2024, Novo Nordisk struggled to keep up with demand, thereby opening the door to the widespread production and sale of its ‘compounded’ medicine. All at very low prices – often under $300 a month – compared to Wegovy’s $1,300. The situation has created an economic and reputational problem for the company. Admittedly, in February, the FDA declared the Wegovy shortage to be over, ordering the cessation of ‘compounded medicines’. However, some pharmacies and online platforms continue to offer ‘personalised’ versions of the treatment, claiming that each dose is unique to the patient. Novo Nordisk has challenged these practices, accusing operators of circumventing the regulations (the partnership with Hims & Hers Health has been terminated). Overall, once again, it is clear why the shares are struggling on the stock market.
