Veriton Investment

Novo Obesity Pill Spurs Rally After Stock’s Worst Ever Year

(Bloomberg) -- Novo Nordisk A/S shares are bouncing back from their worst ever year, with bulls hoping that a pill version of its blockbuster obesity shot will help finally turn things around for the Danish drugmaker.

The stock has gained 14% so far in January, set for its best month since August. Novo started selling its Wegovy pill a few weeks ago, beating rival Eli Lilly & Co. to market and boosting sentiment after a string of bad news pummeled the shares last year.

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“2026 will be a transition year,” said Robert Hannaford, deputy portfolio manager of the Evenlode Global Income fund, adding that the pill launch seems to be going well. “Longer term, the growth opportunity for them is enormous.”

Analysts at Goldman Sachs Group Inc. agree. They recently hiked their price target on Novo shares, saying the Wegovy pill should drive sentiment in the near term.

A turnaround can’t come soon enough. After a year that included disappointing clinical trial results and multiple profit warnings, Novo shares had been left trading as if the craze surrounding obesity drugs never happened. The company also named a new chief executive officer, Mike Doustdar, and overhauled its board last year.

Doustdar has been “tasked with righting the ship and has been adamant that major strategic changes are unlikely,” according to TD Cowen analyst Michael Nedelcovych, who said he is “cautiously optimistic” about Novo regaining steam.

The company’s first major challenge is to capitalize on its first-mover advantage in oral GLP-1s. Competition will be fierce, with pills seen as key to expanding the market for obesity drugs as a more convenient option for patients than injections. A US regulatory decision on Eli Lilly’s pill — called orforglipron — is expected next quarter.

The first few weeks of sales for the Wegovy pill have “undoubtedly been strong,” according to Jefferies analyst Michael Leuchten. Even so, “we are yet to see expansion of Novo’s overall GLP-1 volumes following launch.”

A more immediate catalyst will come on Wednesday, when Novo is due to report results. Despite the pill launch, analysts are predicting annual sales to drop in 2026 for the first time in nearly a decade. That’s as Novo contends with intense competition and falling prices, with Chairman Lars Rebien Sorensen warning this week that it must guard against a price war.

For the longer-term, some analysts continue to question where Novo’s future sales growth will come from, particularly given the looming competition from generic drugmakers. Novo “still doesn’t have enough in the pipeline to drive growth beyond 2031,” said Barclays analyst James Gordon.

And market participants have predicted Novo’s revival before, only to be disappointed. That’s prompted more caution: just 15 analysts tracked by Bloomberg had a buy recommendation on Novo as of Thursday’s close, down almost 30% since the start of last year. The average 12-month price target suggests only limited upside.

Still, the stock is currently cheap compared to historical multiples. It trades at about 17 times expected earnings, which is less than half the multiple reached in 2024, when Novo was Europe’s most valuable listed company. It’s also cheap compared to Eli Lilly, which trades at 30 times forward earnings.

Meanwhile, the UK Medicines and Healthcare products Regulatory Agency on Thursday warned some patients have died of severe inflammation of the pancreas linked to obesity and diabetes drugs such as Wegovy and Lilly’s Mounjaro.

Analysts such as those at CICC are optimistic. They point to experimental drugs CagriSema and amycretin potentially coming to market in 2027 and 2028, as well as Novo’s efforts to expand the use of GLP-1s to areas such as cardiovascular disease, kidney disease and liver disease.

“Novo Nordisk’s strategy is evolving from being driven by a sole blockbuster to constructing a platform-based ecosystem,” CICC analyst Yuan Gao said. “We anticipate a valuation re-rating as key clinical data readouts and new product launches validate the firm’s secondary growth thesis.”

--With assistance from Joe Easton.

(Adds UK warning in 13th paragraph.)