How Ozempic maker Novo Nordisk lost sheen after creating wonder drug

Business Standard

2 days ago

Eshe Nelson
For years, there was no stopping Novo Nordisk, the Danish drugmaker behind Ozempic. Its diabetes drug became a cultural phenomenon for its ability to induce drastic weight loss while also reducing the risk of heart attacks and other serious diseases in people with obesity. Then, suddenly, its fortunes took a turn.
Novo Nordisk's share price has plummeted more than 50 per cent this year, pushing it out of the top ten list of Europe's most valuable companies. The company bewildered analysts in May when it abruptly said it would replace its chief executive, and it has seemed unable to keep ahead of competition from the American drugmaker Eli Lilly and the prevalence of cheap copycat versions.
'The market's got no patience for Novo,' said Gareth Powell, the head of health care at Polar Capital, a fund manager. 'Sentiment is absolutely dire.'
On Wednesday, Novo Nordisk reported $24 billion in global sales in the first six months of the year, but reiterated it expects growth to slow rest of the year, which it first flagged in a profit warning last week.
Ozempic, which came onto the market in late 2017, led to substantial weight loss and quickly attracted cultural cachet, not least because of its use among celebrities. TikTok videos documenting people's journey with Ozempic attracted millions of views. In the first half of the year, Novo Nordisk made $10 billion in sales from Ozempic, of which 70 percent was in the United States.
For a company that had been focused on the steady business of selling insulin, the popularity of Ozempic took its executives by surprise. In 2021, they started selling Wegovy, semaglutide marketed specifically for weight loss, but demand was so high that the company struggled to meet it.
That shortage 'opened a whole can of worms,' said Rajesh Kumar, an analyst at HSBC.
In 2022, semaglutide landed on the Food and Drug Administration's shortage list, which spurred production of cheaper copycat versions of Novo Nordisk's drugs. To ensure the supply of medicines facing shortages, US federal law allows companies to produce versions of patented drugs via a process of mixing ingredients called compounding.
Novo Nordisk said last week that more than one million people were still using compounded GLP-1s, eating into the company's market share and forcing it to slash sales and profit forecasts.
Novo Nordisk had a huge head start. After Ozempic went on sale, it was another four and a half years before a serious competitor emerged: Eli Lilly's Mounjaro, the brand name for tirzepatide, a drug used to treat diabetes.
Novo Nordisk was further hampered by its slowness in introducing a direct-to-consumer sales platform. NovoCare Pharmacy launched in March, 14 months after LillyDirect.
More than anything, a firm's market value is determined by investors' expectations for earnings in the future. For a pharmaceutical firm, that means the drugs in its pipeline. This has helped Eli Lilly's stock, which is roughly flat for the year, outperform Novo Nordisk's sinking share price.
Eli Lilly's daily pill, orforglipron, has shown promising results in late-stage clinical trials, with similar weight loss to Novo Nordisk's injections and fewer restrictions on its use. Novo Nordisk's oral tablet leads to less weight loss than its injections, but the company has other pills in development.
Concerns are mounting that analysts may have overestimated the potential size of the weight-loss market, or at least how easily more people will gain access to these drugs. At the same time, President Trump is pressuring companies to lower drug prices and threatening tariffs on medicines produced abroad, casting a cloud over pharma firms' business models.
'I still believe there's a big market,' said Mr. Powell of Polar Capital, which invests in both Novo Nordisk and Eli Lilly. But broad concerns about the market are hitting Novo Nordisk hardest, he added.