Danish pharmaceutical company Novo Nordisk(NYSE: NVO) is pioneering a new wave of medical treatment for diabetes and obesity care.
The company develops a long line of blockbuster glucagon-like peptide-1 (GLP-1) agonists, including Ozempic, Wegovy, Rybelsus, and Saxenda. The main compound that Ozempic, Wegovy, and Rybelsus share is called semaglutide.
However, what sets Rybelsus apart from its sibling treatments is that it is an oral pill, whereas Ozempic and Wegovy are administered via injection.
For much of 2024, Novo Nordisk has been crediting Ozempic and Wegovy with the company's success. But just a couple of days ago, Novo quietly announced a major update regarding Rybelsus.
I'm going to break down why Rybelsus could serve as yet another tailwind for Novo, and assess if now is a good opportunity to buy the stock.
Novo Nordisk's next big opportunity
On Oct. 21, Novo released data for its phase 3 SOUL trial focused on cardiovascular disease. The study included 9,650 patients with type 2 diabetes who also have cardiovascular complexities or chronic kidney disease.
According to data from the trial, Rybelsus helped reduce the risk of major cardiovascular events by 14% among patients taking oral semaglutide versus a placebo. This is significant because it marks Novo's second win at the intersection of cardiovascular disease and weight management just this year.
In March, Wegovy was granted an expanded indication from the Food and Drug Administration (FDA) to help treat patients with obesity who may also be at risk of cardiovascular disease such as stroke or hypertension.
Following the announcement from the SOUL trial, Novo's management indicated that the company will be filing for a label expansion for Rybelsus in the U.S. and European Union.
Image source: Getty Images.
Just the beginning for Novo's GLP-1 agonists?
Right now, GLP-1 agonists are primarily focused on treating diabetes and chronic weight management. But with that said, Wegovy's expanded indication from earlier this year shows that something deeper could be at play here. Namely, other health complications can often be affiliated with diabetes or obesity.
Novo's chief rival in the GLP-1 arena is Eli Lilly, the maker of Mounjaro and Zepbound. Earlier this year, Lilly announced positive results from a clinical trial in which Mounjaro was tested to treat obstructive sleep apnea in patients with obesity.
According to a report from JPMorgan, GLP-1 agonists may become even more prolific medications in the future -- possibly with use cases in treating alcohol addiction, chronic kidney disease, arthritis, and Alzheimer's disease.
Should you buy Novo Nordisk stock right now?
Novo Nordisk's price-to-earnings (P/E) ratio of 39.7 is far from cheap. By comparison, the average P/E for the S&P 500 is about 28.
NVO PE Ratio data by YCharts.
With that said, shares of Novo look attractive right now. As the chart illustrates, the company's P/E multiple has compressed materially over the last several months. Moreover, shares of Novo have gained just 12% so far this year -- very much below the returns of Lilly, the S&P 500, and the Nasdaq.
Shares of Novo started to sell off around July, a period where the markets in general were experiencing some turbulence. However, after bouncing back for a brief period in late August and early September, Novo stock appears to have fallen out of favor again.
I see the sell-off as short-sighted. While there are a number of pharmaceutical companies looking to disrupt the incumbents in the GLP-1 realm, I'm not worried about Novo's momentum in the long run.
The expanded indication for Wegovy is yet to materially add to Novo's operating profits, and the company's latest win with Rybelsus suggests that even further gains could be ahead for Novo, both within and beyond the weight loss landscape.
I think Novo Nordisk is a compelling buy for investors with a long-run time horizon and view the current price action as an opportunity to buy the stock at a reasonable valuation.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
