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Everyone Is Talking About This Stock. Is It a Good Long-Term Option?

Motley Fool - Sat Dec 2, 2023

Artificial intelligence has undoubtedly been the hottest investing topic on Wall Street this year. And while it's hard to decide on a runner-up, weight-loss medicines deserve a spot high up on that list. Led by such products as Wegovy, manufactured by Danish pharmaceutical giant Novo Nordisk(NYSE: NVO), the area of obesity care is garnering substantial attention.

However, that alone doesn't make Novo Nordisk a buy, even as it leads this budding market. Can the drugmaker match the lofty expectations the market has for it? And can it do so over the long run? Let's find out.

Novo Nordisk's core therapeutic area

One of Novo Nordisk's strengths is its focus on diabetes and obesity care. The company has been the leader in this field for a while. Novo Nordisk has a team of scientists and researchers that has, time and time again, successfully developed newer and better products.

This is an important factor when considering the biotech's long-term prospects. After all, though Novo Nordisk's financial results have been solid all year, its current lineup of medicines will eventually run out of patent exclusivity.

The company is also dealing with increased competition and not just from its longtime foe, Eli Lilly. Other pharmaceutical giants, including Pfizer and AstraZeneca, are also plotting to take some market share away from Novo Nordisk in the weight-loss space. Still, Novo Nordisk's impeccable track record and existing lineup and pipeline are all excellent indicators of its ability to remain ahead of the pack.

The company's key medicines in diabetes and obesity care -- Wegovy, Ozempic, Rybelsus, and Saxenda -- are growing their sales rapidly. For instance, Wegovy's revenue in the first nine months of the year skyrocketed by 481% to 21.7 billion Danish krone ($3.19 billion). Novo Nordisk's total sales of DKK$166.4 billion ($24.5 billion) through Sept. 30 increased by 29% year over year. The company had a 33.3% share of the global diabetes care market as of August, an increase from the 31.5% it had as of August of last year.

Furthermore, Novo Nordisk is looking at multiple label expansions and brand-new products in this area. One label expansion it could earn is with Ozempic in treating kidney disease in diabetes patients. The company recently reported positive results from a clinical trial along those lines that jolted its stock price. Novo Nordisk is also awaiting approval for a new, once-weekly insulin product called icodec for which it has already submitted regulatory applications in various regions.

The drugmaker is running many more clinical trials in this area. So despite the growing competition, Novo Nordisk's innovative abilities should allow it to remain one of the leaders in its main markets, just as it has for several decades.

Expanding into new markets

Novo Nordisk is looking to diversify its lineup, which will allow it to decrease its exposure to and better deal with the mounting challenges in its core market of diabetes and obesity care. The company is working on several programs that target challenging conditions such as Alzheimer's disease (AD), nonalcoholic steatohepatitis, sickle cell disease, and more.

All three of these are areas where there is a strong need for more therapy options even with some relatively new or upcoming approvals in these fields, and Novo Nordisk is running late-stage clinical trials targeting all three. There is no guarantee that all of the company's programs will pan out, but some likely will. Novo Nordisk's work in AD could be especially promising.

With an aging population, the number of people with this devastating illness is projected to continue rising rapidly, hence the need for novel approaches in treating it. Whether within AD or elsewhere, Novo Nordisk should have successfully expanded and diversified its lineup within the next five years.

Plenty of growth left ahead

Novo Nordisk has crushed the market this year for a good reason. Beyond the popularity of its weight-loss products, the biotech's underlying business is strong and has helped it deliver excellent financial results. The company has an exciting lineup and a rich pipeline of products that will regularly yield new approvals and not just within diabetes care.

That's why Novo Nordisk has grabbed plenty of headlines this year, and given everything going the company's way, it seems well-positioned to deliver excellent returns to its shareholders over the long run.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends AstraZeneca Plc and Novo Nordisk. The Motley Fool has a disclosure policy.

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