Could This New Approval Be a Turning Point For Novo Nordisk?

Novo Nordisk (NYSE: NVO) was the leader in the weight-loss market several years ago, with the company's now-famous anti-obesity medicine, Wegovy, flying off the shelves so quickly that it encountered shortages. However, things have changed significantly since then. Novo Nordisk lost its top spot to its main competitor, Eli Lilly (NYSE: LLY), partly because the latter's Zepbound proved more effective than Wegovy. That said, Novo Nordisk hasn't given up hope that it will regain its leading position in this niche, and a new approval it just announced might help.

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A new version of Wegovy is hitting the market

On March 19, Novo Nordisk announced that the U.S. Food and Drug Administration had approved a high-dose (HD) version of Wegovy. What is notable about HD Wegovy is that it performed better than the original version in a head-to-head clinical trial. The new formulation led to an average weight loss of 18.8%, compared to 15.5% for the older version in the 72-week study.

Perhaps even more importantly, HD Wegovy somewhat closes the efficacy gap the medicine had with Zepbound. With the usual caveat that comparing across clinical studies is challenging, Zepbound's 20.2% mean weight loss after 72 weeks in one study isn't significantly higher than HD Wegovy's performance.

This new approval might help Novo Nordisk somewhat, but it is unlikely to allow it to leapfrog Eli Lilly in this market. Here are two reasons why. First, whereas Zepbpound beat Wegovy in a head-to-head study, all we can say for sure from HD Wegovy's performance is that it is better than the original formulation. Of note, even Novo Nordisk's next-gen GLP-1 medicine, CagriSema, lost to Zepbound in a head-to-head clinical trial in chronic weight management.

Second, Zepbound has at least one other important indication: It is approved to treat obstructive sleep apnea in overweight or obese patients. This additional indication may give it an edge over the new version of Wegovy.

Is Novo Nordisk a buy?

Novo Nordisk could still stage a comeback as it advances its pipeline in the weight-loss market. Over the next two years, we could see clinical trial results for at least two promising candidates: Amycretin, an investigational medicine with oral and subcutaneous formulations in phase 3 studies, and UBT251, a therapy that mimics the actions of three gut hormones for added efficacy.

Provided results from ongoing studies are positive, Novo Nordisk's shares could rise. Even if these candidates don't pan out, Novo Nordisk has a deep pipeline in its core therapeutic area that should eventually yield newer, better products, as well as the cash to make promising acquisitions or licensing deals. Meanwhile, the stock remains fairly valued, trading at 10.9x forward earnings, compared to the average of 17.1x for healthcare stocks, as of this writing. Novo Nordisk may not bounce back immediately, but the stock could still deliver solid returns over the next decade.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.