The popularity of Novo Nordisk’s (NVO) weight-loss drug, Wegovy, has already catapulted its stock to become Europe’s most valuable company, as measured by market capitalization.
Wegovy is a GLP-1 drug. Glucagon-like peptide-1 (GLP-1) agonists are a class of drugs used to treat type 2 diabetes and obesity. They mimic the action of GLP-1, a hormone released by the stomach after eating that signals the pancreas to produce more insulin and keep blood sugar levels normal.
There is much more to come for the company and its GLP-1 drugs. One reason for this is the recent announcement that Wegovy “has been approved in China for long-term weight management” for overweight and obese people.
Why the China News Is Big
This decision opens the door to a huge market in which obesity rates have more than doubled among adults in the past two decades. The one caveat is that patent protection for the drug in China only runs through 2026.
Nevertheless, at an investor day in March, Novo Nordisk said the China region - mainland China, Hong Kong, and Taiwan - will be an area of growth for the company. The company estimates that the number of people living with obesity is expected to rise by 161% to 479 million people from 2021 to 2045.
In a national survey conducted during 2015-2019 by China’s National Health Commission, overweight and obesity rates among Chinese adults were 34.3% and 16.4%, respectively. That means more than half of the adult population was either overweight or obese.
The number of overweight adults in China is projected to reach 540 million by 2030, 2.8 times higher than 2000 levels, a Chinese public health study showed in 2020. The number of people who are obese is seen jumping 7.5 times in China to 150 million.
And don't be surprised if Novo Nordisk relatively soon moves into that other Asian giant, India. It has the third-largest number of people living with obesity, right behind China and the U.S. The company’s Ozempic is designed for type 2 diabetes, but is often used off-label for weight loss. More than a tenth of the Indian population is estimated to be living with diabetes. That should give the drugmaker room for growth in the longer term.
In the meantime, Novo Nordisk stands to gain an exceptionally fat windfall in one of the biggest markets in the world, China, over the next few years.
Production Expansion
Of course, to do this, the company will need to invest huge amounts of money into expanding production of Ozempic/Wegovy. And it's doing just that.
On June 24, Novo Nordisk announced it is investing $4.1 billion to expand its U.S. manufacturing capabilities to meet the surging demand for its weight-loss drug.
The investment will fund a new 1.4 million square foot manufacturing plant on a site near Raleigh, North Carolina, doubling its size. The extra capacity will come online between 2027 and 2029.
Earlier this year, the company agreed to pay $11 billion for three “fill and finish” sites owned by Catalent (CTLT) , as part of a deal between the U.S. contract drug manufacturer and Novo Nordisk’s parent company, Novo Holdings.
Including its latest investment, Novo Nordisk has committed $6.8 billion this year to boost its own in-house production capacity. Last year, it announced plans to spend $6.5 billion on a new manufacturing site in its home country of Denmark to increase production of semaglutide, the active ingredient used in its weight-loss drugs.
The company has an enormous amount riding on the success of Ozempic and Wegovy, which analysts estimate will have combined sales of more than $26 billion this year. Weight-loss drugs will probably become a $100 billion market by 2030, according to forecasts Goldman Sachs and others.
Buy NVO Stock
Novo Nordisk stock remains a strong buy.
If we step away from weight-loss for a moment, we’ll see that, as a pioneer in diabetes care, the company has been in the business for over 85 years, and claims 34% of the $50 billion-plus diabetes treatment market, roughly half of the more than $15 billion insulin market, as well as about half of the GLP-1 market.
Diabetes' prevalence is expected to soar in coming decades as the result of an increasingly overweight and aging population, and I expect Novo Nordisk to maintain its dominance in diabetes and obesity therapy innovation.
The company has a robust new product pipeline with a number of Phase 3 candidates, including: new formulations of its blockbuster GLP-1 treatment, semaglutide, for diabetes and obesity; combination obesity therapies that include semaglutide; new semaglutide indications for Alzheimer's disease and metabolic dysfunction-associated steatohepatitis (MASH); and new drugs for hemophilia, chronic kidney disease (CKD), heart failure, and cardiovascular disease.
Add to that a clean balance sheet, and a management team with a history of growing the dividend and buying back stock.
All of these factors mean that NVO is still a must-own stock. It can be bought anywhere near its current price of $143.
