Artificial intelligence (AI) wasn't the only big investment theme last year. The pharmaceutical industry saw increased interest due to the popularity of new weight-monitoring treatments.
In particular, Danish drug manufacturer Novo Nordisk (NVO 1.35%) enjoyed tailwinds fueled by demand over its flagship products Ozempic, Wegovy, Rybelsus, and Saxenda. The stock's 53% return handily topped the S&P 500 and minted Novo Nordisk as Europe's most valuable company by market capitalization.
With such an incredible run in 2023, some investors might be wondering if it's time to take some profits. This is certainly understandable given that no stock generates market-beating returns in perpetuity.
Could Novo Nordisk be headed for a sell-off in 2024? It could be, but let's explore how and why this could or could not be the case before rushing into any panic selling.
NYSE: NVO
Key Data Points
Ozempic's magic run
You may be familiar with Ozempic due to the catchy jingle on its commercials, which features a spin on the 1970s song "Magic" by Pilot. While the marketing for the glucagon-like peptide 1 (GLP-1) treatment is a little campy, there's no doubt it's working.
Through the first nine months of 2023, sales for Novo Nordisk's GLP-1 medications surged by 49% year over year. Ozempic is at the helm of this growth, as the drug now accounts for a whopping 46% of the GLP-1 market. Moreover, the company's other budding GLP-1, Rybelsus, owns roughly another 12% of the market -- placing Novo Nordisk as the undisputed leader among these diabetes medications.
Indeed, Novo Nordisk also has a prolific operation in the obesity market as well. Obesity care sales increased 174% year over year through the first nine months of 2023. A good portion of this accelerated growth can be attributed to Novo Nordisk's other hit treatment, Wegovy. Sales of Wegovy have increased nearly 500% year over year just in the U.S.
It's safe to say that demand for Novo Nordisk's weight-management medications is off the charts. Given the impressive contributions these treatments have made to the company's overall business, it's not surprising to learn that Novo Nordisk has landed on the radar of more investors. In turn, the stock has gone parabolic in a relatively short time frame.
While this is nice for anyone who owns a position in Novo Nordisk, it's prudent to wonder if the stock could be headed for a sell-off.
Image source: Getty Images
Where is Novo Nordisk stock headed?
Trying to forecast a theoretical impending sell-off in a stock is an exercise in false precision. It's this paradigm that makes the investment adage -- "spending time in the market versus timing the market" -- so important. Right now, I see two primary reasons why Novo Nordisk could experience some selling activity in the near term.
First, while the company enjoys a market-leading position among diabetes treatments, rival Eli Lilly (LLY 0.31%) is quickly catching steam. Lilly is the developer of Mounjaro, an alternative to Ozempic. Since its approval from the Food and Drug Administration (FDA) in the spring of 2022, Mounjaro has already ballooned to Eli Lilly's second-largest revenue stream. Furthermore, Lilly's recent milestone approval of Mounjaro's sibling treatment, Zepbound, could upend Novo Nordisk's influence among diabetes and obesity care.
The second reason why Novo Nordisk could see its shares drop is if there is negative news surrounding any of its medications. There are a rising number of hospitalizations from people overdosing on Ozempic and Wegovy. Moreover, a number of side effects including nausea, dizziness, and kidney problems have also been associated with Ozempic.
While side effects should be keenly monitored, this is a concern among any pharmaceutical company. For this reason, I wouldn't panic over Novo Nordisk's prospects due to some perceived concerns over Ozempic.
Additionally, the entrance of Eli Lilly's competing medications could actually be viewed as a positive. According to industry research, some believe that by 2050, there could be 1 billion diabetics worldwide. It's no wonder why some on Wall Street see the weight-loss market being worth $200 billion as soon as 2030.
While it's entirely possible that Novo Nordisk stock could drop this year for these reasons, I wouldn't bank on it. There appear to be secular tailwinds fueling demand for weight monitoring medications, and Novo Nordisk's position is currently second to none. While Lilly is likely going to continue to gain momentum, I don't see that as a reason to exit Novo Nordisk. Rather, long-term investors may simply want to diversify their portfolio and own positions of both pharmaceutical companies as a hedge.
As an investor in both Novo Nordisk and Lilly, my plan is to hold for the long term and adjust each position accordingly. For now, I'm satisfied with the performance of each stock and do not plan on replacing either position.
