Is Novo Nordisk (NVO) Stock a Buy or a Bust?

Novo Nordisk (NVO) was a real winner for Cabot Explorer subscribers after its branded blockbuster drug Wegovy was approved as a weight-loss injection in the United States in 2021.Wegovy’s U.S. sales went up 8X from $860 million in 2022 to $6.8 billion in 2024. Novo Nordisk became the most valuable company in Europe by market value.But as the stock soared, I suggested that we take some profits off the table to lock in some nice gains, expecting competitors to enter this fast-growing, high-margin market.[text_ad]Danish pharma giant Eli Lily (LLY) entered the fray with its Mounjaro brand at a lower price point, and over time, tests proved it to be reportedly more effective with fewer side effects than Wegovy. Even so, there was plenty of demand for both pharma giants.But as demand soared, Novo’s production could not keep up, and this gave Lily and other smaller potential competitors an opening. Then the FDA put semaglutide (the active ingredient of Wegovy) on its drug shortage list, allowing third-party compound manufacturers to sell the drug to pharmacies.Hims & Hers (HIMS) is one example of a compounder, offering lower-cost weight-loss drugs that are not FDA-approved and yet are able to compete with Wegovy.The FDA is now comfortable with Novo’s ability to adequately supply enough semaglutide, so it has ordered all outsourced producers to wind down their semaglutide manufacturing. Many will keep going until litigation forces them to stop. In July, Novo’s market share slipped below 50%. Lily has also been much more aggressive on the marketing side for its weight-loss drugs. It also launched LilyDirect early last year to sell drugs directly to patients at cheaper prices.Learning a hard lesson, Novo set up its NovoCare Pharmacy in March to directly write Wegovy prescriptions, accept payments, and ship to patients. The NovoCare Pharmacy is already writing 11,000 prescriptions weekly for Wegovy. Novo has also inked a deal with CVS.Novo will also need to reduce pricing, which, of course, narrows profit margins (estimated to be close to 90% in America). The average price of Wegovy, if paid out of pocket, is $1,300 per month - 10X more than the cheapest compounder competitor.By my math, Novo is generating a rather incredible 89% gross margin for Wegovy sold in America.The global market for weight-loss drugs has increased 15X in the last four years, from $1 billion in 2020 to $15 billion in 2024. Some expect the potential market to reach 1 billion people, and it may reach $80 billion as soon as 2030. This means the current market penetration is still tiny compared with projections.How should we view Novo Nordisk (NVO) stock right now?Novo has admitted its mistakes and is making moves to get back in the game. Investors are a bit rattled as the company’s market value is being reset to reflect new competition and lower but still healthy profit margins. Novo also named a new CEO, Maziar Mike Doustdar, turning to a veteran insider to revive sales and reassure investors.While its price-to-sales and price-to-book ratios remain elevated, its return on equity is still impressive.This stock should be on your watch list but could pull back more as quarterly comparisons will not look terrific. This would be the time to buy.[author_ad]