Novo Nordisk stock slumped Monday even though the company unveiled promising test results that suggest a new class of weight-loss drugs could prevent some patients from developing diabetes.
The company tested its drug, Wegovy, in patients with obesity and established cardiovascular disease, but not type 2 diabetes. After five years, 3.5% of Wegovy recipients developed diabetes vs. 12% of those who received a placebo. In other words, Wegovy lowered the risk of developing diabetes by 70%.
Bank of America analyst Geoff Meacham says the results of Novo's Select study support much broader insurance coverage of weight-loss drugs.
"According to our (key opinion leaders), the Select results will be 'hard to ignore' and 'payers are going to have to go along' with treatment plus coverage, which speaks to the enthusiasm we felt throughout the conference," he said in a report.
But on the stock market today, Novo Nordisk stock fell 0.4% to 100.78, paring steeper losses. Eli Lilly stock also slipped in early trades, but bounced back, rising 2.5% to close at 612.71. Lilly sells a rival weight-loss drug.
Novo Nordisk Stock: Reduced Risks
Overall, the data was well-received, RBC Capital Markets analyst Luca Issi said in a report.
Wegovy lowered the risk of death due to cardiovascular events by 15%. Patients also had a 28% lower risk of heart attack and a 7% reduction in the risk of stroke. Patients who received Wegovy were 19% less likely to die of any cause over five years.
Importantly, the differences between the Wegovy and placebo groups were apparent "from the get go, suggesting the benefit is not only driven by weight loss," he said. "Improving inflammation, glycemic control or renal function (are) all theorized as likely contributing."
Bank of America's Meacham says the results bode well for a similar study from Lilly called Surmount-Morbidity and Mortality. That study is testing Lilly's tirzepatide — which sells in diabetes treatment as Mounjaro and as a weight-loss drug called Zepbound — in a similar group of patients. That study is expected to wrap in late 2027.
He kept his buy rating and 700 price target on Eli Lilly stock, but didn't note a rating on Novo Nordisk stock.
Medtech Stocks On The Rise
Another Bank of America analyst, Travis Steed, says the results also bode well for medtech companies like Dexcom. Dexcom, and rivals Abbott Laboratories and Medtronic, make body-worn devices that help manage diabetes.
Earlier this year, the initial results of Novo's Select study sent medtech stocks into a dive. Investors worried lower rates of obesity due to weight-loss drugs would reduce the number of patients who need continuous glucose monitors, or CGMs. But Steed says that's unlikely.
Weight-loss drugs "should be an effective tool for a subset of the population, but even with these drugs, overall diabetes is likely to grow," he said. "Today, there are 529 million people with diabetes globally, and forecasts have this number growing over 3% a year to 1.31 billion people by 2050."
A key narrative from Novo's Select presentation focused on "intensive lifestyle interventions" to help prevent diabetes, Steed said in a report. CGMs could be an integral part of the lifestyle changes needed to prevent diabetes. There are 96 million people with prediabetes.
While Novo Nordisk stock dipped, shares of Dexcom, Abbott and Medtronic jumped 4.6%, 1.9% and 2%, respectively.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
