Why Novo Nordisk Flew Almost 3% Higher on Friday

Key Points

• The company's leading product looked more attractive following price hikes by a competitor.

• Eli Lilly's Zepbound will become more expensive in the U.K. and likely throughout Europe subsequently.

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An archrival's pricing move was seen as beneficial for Novo Nordisk (NYSE: NVO) on Friday. As investors disseminated news of a dramatic increase in the cost of a product competing with the company's star drug, Wegovy, they pushed the Danish pharmaceutical company's share price up. It closed the day almost 3% higher during a session when the S&P 500 index ended up slumping by 0.3%.

A rival's hikes

The previous day, U.S. healthcare giant Eli Lilly announced that it was raising the prices of Zepbound -- a GLP-1 obesity drug that directly competes with Wegovy -- in the U.K. In doing so, the company indicated that it will follow suit in other European markets.

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The move follows a Trump administration push to reduce drug prices in America (or, at least, effectively level them across the world). In late July, the president sent letters to the CEOs of top U.S. drug companies, stating that they had until Sept. 29 to reduce the costs of certain medications.

Failure to do so, the president wrote somewhat vaguely, would see the federal government "deploy every tool in our arsenal to protect American families."

Although Novo Nordisk also received one of these letters -- there were 17 in all -- the company hasn't given any concrete indication that it intends to make adjustments similar to Eli Lilly's.

Customer rebellion brewing?

For the moment, then, Novo Nordisk enjoys a bit of an advantage, as there is inevitably customer backlash (and often defection to rival products) when a company hikes prices. We've yet to see how Trump's initiative will fully play out, however. So, personally, I don't think any investor should base their Novo Nordisk stance on the Eli Lilly development.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.