Obesity Drug Hit Makes Novo Nordisk More Valuable Than Nestle

It’s the Wegovy effect.

(Bloomberg) — It’s the Wegovy effect.  

The blockbuster weight-loss drug, a hit with Hollywood and Silicon Valley celebrities, has more than doubled the market value of Novo Nordisk A/S since 2021 and looks set to be a cash cow for the Danish firm for years to come. 

Wegovy has flown off the shelves since it gained US approval in June 2021, alongside Ozempic, its diabetes drug that has also been used as an appetite-suppressant. With obesity care sales at Novo Nordisk more than doubling in 2022, its market value has soared to 2.3 trillion Danish kroner ($336 billion), making it Europe’s second-most valuable firm, and knocking the 160-year-old Swiss conglomerate Nestlé SA into third place. 

The drugmaker is still some way behind the $448 billion luxury goods firm LVMH Moët Hennessy Louis Vuitton SE, which is Europe’s biggest company by market cap. Yet it’s climbed from seventh place in just two years, with shares scaling a new record high on Thursday at 1,025 Danish kroner ($150). 

“It is still in the early days, but the medical need is clear and the number of potential patients is huge,” said Ulrica Slane Bjerke, portfolio manager at the Arctic Aurora LifeScience health-care fund, which counts the Danish firm as one of its key holdings.

The two hugely successful drugs are being tapped by experts to be a key tool to fight rising obesity rates worldwide. Analysts at Cowen predict the global weight-loss therapies market to be worth $30 billion by 2030, though some estimates put it as high as $50 billion. 

Researchers have found that Ozempic helps patients shed an average of 8 to 14 pounds, while people on Wegovy have been shown to lose about 15% of their body weight. Both drugs are based on appetite-suppressing technology known as GLP-1 agonists — though so far only Wegovy is approved for treating obesity. Ozempic is labelled for diabetes, but has been so widely used for weight loss that Europe’s drugs regulator recently urged doctors to prioritize the injection for diabetics.

Such has been the frenzy, that a joke about Ozempic even made it into the March 12 Academy Awards ceremony. As shortages have developed, Novo Nordisk has struggled to keep up with demand, and Wegovy’s 2022 rollout was further hampered by production issues.

Read More: Obesity Treatments Catch Drugmakers’ Eyes as Sales Seen Soaring

The company’s management told investors at the its annual general meeting Thursday that manufacturing bottlenecks had been resolved, and production was being expanded in the US and Denmark. Two common doses of Ozempic are now available again, according to an update posted on the US Food and Drug Administration’s drug shortage database last week.

Novo Nordisk’s chief executive officer Lars Fruergaard Jorgensen told the AGM, the company had needed to increase production capacity overall. “It’s not that we have one big bottleneck we are solving.” 

Analysts are split on how much more Novo can capitalize from the two drugs, which together accounted for some 43% of group revenues last year, up from 30% in 2021. Meanwhile competitors are muscling into the lucrative field, with Novo’s primary diabetes care rival in the US, Eli Lilly & Co., now offering its own treatments using GLP-1 agonists.

The company’s shares, the world’s best health-care performers since Wegovy’s mid-2021 launch, currently have 17 buy ratings, while 10 analysts rate them hold and a further five have them on sell. 

The stock is expensive, trading at 30 times forward earnings, double that of European peer Roche Holdings AG. Analysts tracked by Bloomberg see an average return potential of 2.2% in the coming 12 months, well-behind large pharmaceutical peers such as AstraZeneca Plc at around 15%, and Roche at around 25%.

“One could argue that Novo is priced to perfection, but the market likely sees upside potential based on the transformation of obesity treatment that Novo is part of,” Slane Bjerke said.

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