The healthcare business never sleeps and never goes out of style. That's one of the advantages of investing in stocks in this sector. But to be successful at it, it's important to pick innovative companies that benefit from an economic moat, are leaders in their respective niches, or have some other kind of advantage that can allow them to remain successful and relevant for a long time.
Many candidates fit this description, but let's consider just two today: Novo Nordisk(NYSE: NVO) and Veeva Systems(NYSE: VEEV).
1. Novo Nordisk
Novo Nordisk has been one of the best-performing pharmaceutical giants in recent years. The company is riding the success of medicines such as Ozempic, which treats diabetes, and anti-obesity therapy Wegovy. These brand names have become incredibly famous and have helped Novo Nordisk deliver excellent financial results. In 2023, Ozempic's total sales increased by 60% year over year to 95.7 billion Danish kroner ($13.8 billion).
Wegovy's revenue skyrocketed by 407% year over year to 31.3 billion DKK ($4.5 billion). Though several of Novo Nordisk's products are losing steam, the company's total revenue of 232.3 billion DKK ($33.7 billion) was 31% higher than in 2022. Novo Nordisk should make more progress this year in its core areas of diabetes and obesity care. In diabetes, the drugmaker is waiting for the approval of icodec, a potential once-weekly insulin product.
Though Novo Nordisk remains a leader in the insulin market -- it had a 45.4% share as of November -- the company's sales in this area have been dropping, partly due to price cuts for older products it was forced to implement to match a move its biggest competitor in this niche made. Icodec could help reverse this trend. In obesity, Novo Nordisk recently reported highly encouraging results from a phase 1 study for an oral weight loss therapy called amycretin.
The company plans to begin a phase 2 study in the second half of the year. Though Novo Nordisk will face increasingly stiff competition in diabetes and obesity, its track record of developing some of the most successful medicines in both areas gives it a significant advantage. The rest of Novo Nordisk's pipeline is exciting. The company boasts about a dozen programs in phase 3 studies.
Even a handful of key approvals in the next couple of years should move the needle for the company, on top of the fast-growing duo of Ozempic and Wegovy. Novo Nordisk should continue to perform better than most of its peers.
2. Veeva Systems
Veeva Systems is the leading provider of cloud-based solutions tailored to the life sciences industry, which has particular needs. For instance, drugmakers can take years to bring their products to market. They must comply with a labyrinth of regulatory rules and guidelines while storing a wealth of data on clinical trials. There are plenty of cloud providers, but it helps to have one whose products are specifically designed with those constraints in mind.
That's why Veeva has attracted the business of many of the largest drugmakers, including Novo Nordisk. Veeva Systems has generally reported solid financial results despite a recent slowdown due to economic conditions that affected much of the cloud market. During its fiscal year 2024, ending on Jan. 31, Veeva's revenue of $2.4 billion grew by 10% year over year. The company's adjusted net income was $791 million, up 14% year over year.
Veeva Systems can continue growing for a while thanks to the economic moat it has built and the remaining addressable market at its disposal. Veeva benefits from switching costs. Since its clients depend on its services for their day-to-day activities -- and these activities are crucial for the health of their businesses -- switching to a competing cloud provider could lead to business disruptions, loss of data, a slowdown in the drug development process, or some other issue.
That's not something these companies would risk, not on a whim anyway. Meanwhile, Veeva Systems estimates a $20 billion addressable market -- and it has grabbed just about 12% of that total. So there is plenty of fuel left in the company's growth engine. Investors can safely buy this stock now and hold it for a while.
Should you invest $1,000 in Novo Nordisk right now?
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Veeva Systems. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
