Shareholders have little to fear – for now.
Diabetes drug Ozempic has been a cash cow for Novo Nordisk (NVO -1.22%)The company’s revenue, profits and stock price have all been on a roll in recent years – and no drug has contributed more to its performance than Ozempic.
However, various potential obstacles have emerged that could disrupt Ozempic’s progress. One of them is competition. Novo Nordisk’s long-time foe in the diabetes market, Eli Lillydeveloped Mounjaro, a diabetes drug whose sales are growing incredibly quickly.
Meanwhile, the side effects of Novo Nordisk’s flagship product are under increased scrutiny, and a recent study suggests that Ozempic may have a dangerous safety issue. Let’s see what this could mean for Novo Nordisk.
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Could Ozempic cause suicidal thoughts?
One of the side effects of Ozempic that has received a lot of attention is muscle loss. However, an even more dangerous potential downside, which some researchers have warned about, is the possibility that Ozempic may increase suicidal thoughts.
A recent study claims to shed more light on this topic. The study looked at two drugs in the class of GLP-1 receptor agonists, to which semaglutide, the active ingredient in Ozempic, belongs. The other GLP-1 drug presented was liraglutide, the generic name for Victoza and Saxenda, which treat diabetes and obesity, respectively.
Liraglutide is another Novo Nordisk discovery. Using a World Health Organization database of suspected adverse reactions to drugs and vaccines, researchers found that Ozempic was associated with a higher rate of reported suicidal thoughts than other drugs. Liraglutide does not appear to be associated with higher rates of suicidal thoughts.
What should investors think of these results? Should healthcare stocks be sold?
No reason to press the panic button
Regulators are already aware of the potential association between Ozempic – or at least its active ingredient, semaglutide – and suicidal thoughts. Wegovy, an obesity drug that shares the same active ingredient, has issued a warning about this very thing in the US.
Researchers sometimes learn more about a therapy and its side effects after years of using it in real-world situations. If studies establish a strong causal link between Ozempic or Wegovy and suicidal thoughts, that could prompt regulators to take action. They might add additional warnings or, in the worst case, pull the drug from the market. Either way, it would mean lower (or no) sales of Novo Nordisk’s main growth driver, weighing on its revenue, profits and stock price.
But there is no reason to think that this study will lead to this morbid scenario. Other studies have reached different conclusions. One of them was published in Natural medicineone of the world’s most prestigious scientific journals, has found that semaglutide has a lower risk of causing suicidal thoughts compared to other non-GLP-1 anti-obesity drugs in real-world situations. This study, unlike the previous one, compared patients based on factors that can influence suicidal behavior, including gender, socioeconomic status, ethnicity, and mental health.
It would take a lot of work to reverse these results, so for now, investors can continue to focus on Novo Nordisk’s performance. And on that front, there aren’t too many complaints.
Financial results continue to be strong. In the first half of the year, the company’s net sales increased by 24% year-on-year to DKK 133.4 billion ($19.8 billion). Ozempic’s sales increased by 36% year-on-year, while Wegovy’s jumped by 74%. It is worth noting that Novo Nordisk continues to dominate the GLP-1 market: its share was 56% in May, up from 54% a year earlier.
Ozempic could win several nomenclature extensions, including in the exciting area of nonalcoholic steatohepatitis, where it is being studied in a Phase 3 study. Novo Nordisk has many other promising candidates. CagriSema, a next-generation GLP-1 drug, could be another multibillion-dollar drug. The drugmaker is also looking to diversify, with several programs in various therapeutic areas.
Although various challenges continue to emerge for Ozempic, the recent study does not pose too many problems for the drug and its manufacturer. Novo Nordisk should continue to post good financial results and stock performance in the near future. I think the stock is still worth buying.
