Novo Nordisk (NVO 0.96%) has been a great investment over the past few years. Since the start of 2022, shares of the Danish healthcare giant have risen by 120%, far outstripping the S&P 500's return of just 8%. The company is a big name in diabetes care and weight loss, with many drugs that can help people in those areas.
And despite its already strong returns of late, there is still much more upside for the stock. That's because the healthcare company is still in the early stages of rolling out its promising weight-loss treatment, Wegovy. Here's a closer look at why sales for the drug could be due to take off in the not-too-distant future.
Insurance coverage will boost demand
In clinical trials, Wegovy has demonstrated incredible results, helping people lose 15% of their body weight, on average, after one year. But there is an increasing number of reasons to take the drug besides just weight loss. In March, the Food and Drug Administration (FDA) approved Wegovy as a treatment to reduce cardiovascular risk in obese and overweight adults. And as more studies are done and more potential benefits are uncovered, there may be even more reasons to take the drug in the future.
That's one of the reasons health insurance companies are becoming more receptive to providing coverage for the drug. And according to a recent study, there could be more than 3 million people on Medicare who may be able to get coverage for the drug now that it is approved for reducing cardiovascular risk. Some drug plans, however, may not offer coverage until next year -- and that may not necessarily be a bad thing for Novo Nordisk.
Boosting supply may be the key to growth
A delay in coverage may be a good thing for Novo Nordisk as it will buy the company some time to ramp up supply. Demand has been so overwhelming that it has been using contract manufacturers to help with production. It also plans to invest $6 billion to build out additional manufacturing capacity in Denmark. More recently, its parent company announced it wants to acquire Catalent for $16.5 billion. Catalent is a drug manufacturer that currently aids Novo Nordisk with its production of Wegovy.
During the first three months of the year, Novo Nordisk's sales rose by 22% to 65.4 billion Danish kroner ($9.8 billion). And its net profit increased by 28% to 25.4 billion Danish kroner ($3.8 billion). Wegovy was far and away the company's fastest-growing drug, with its sales rising by 106% compared with the previous year. Ozempic, which is a diabetes treatment that patients have been using off-label for weight loss, grew at a more modest rate of 42%.
With the company increasing its production capabilities and with demand likely to increase as well, Novo Nordisk's already strong and impressive numbers may look even better in the future.
Still looking like a great stock to buy
Shares of Novo Nordisk have risen 19% this year but given the growth opportunities for the business to get much bigger in the long run, thanks in large part to Wegovy, investors can still earn great returns from buying and holding this healthcare stock.
At over 40 times earnings, it isn't a cheap buy, but with a couple of strong products in Wegovy and Ozempic, Novo Nordisk still likely has a lot more room to grow its top and bottom lines in the years ahead.
