Novo Nordisk's Stock Could Get Another Boost, Thanks to This Huge Development

It may not be too late to invest in this promising healthcare stock, even though it may look expensive.

Novo Nordisk (NVO -2.04%) has become one of the most valuable healthcare stocks in the world, largely due to a couple of exceptional drugs, Ozempic and Wegovy. While the former is a diabetes drug and the latter is approved for weight loss, consumers have been using both to help lose weight. And their effectiveness has created significant demand, which has translated into incredible sales and profit growth for Novo Nordisk in recent years.

But the company arguably is not doing as well as it could as there are constraints on both the demand and supply side. Novo Nordisk is investing billions into additional capacity and has been working with contract manufacturers to help increase the supply of these drugs. On the demand side, not everyone who wants these drugs can afford them.

The good news is that health insurers are starting to warm up to the idea of providing coverage for them. Let’s see what this could mean for the stock and its investors.

Multiple health insurers to cover Wegovy

According to a report from The Wall Street Journal, multiple health insurers in the country are going to provide coverage of Wegovy for Medicare patients. This includes CVS Health, Elevance Health, and Kaiser Permanente. That means there could soon be an influx of new demand for Wegovy, which can cost over $1,000 out of pocket.

The caveat, however, is that the coverage will be to reduce the risk of heart attack and stroke in high-risk individuals who also have Medicare drug plans. Earlier this year in March, the Food and Drug Administration (FDA) approved Wegovy for heart-related risks after the drug demonstrated encouraging results in clinical trials. Health insurers are seeing a benefit in Wegovy’s use beyond just weight loss, and that has given them more of a reason to provide coverage for the drug.

Production capacity remains an issue

This is an encouraging development for Novo Nordisk and will provide it with greater incentive to secure more supply of Wegovy. The big challenge thus far has been in producing enough medication.

But Novo Nordisk has been making efforts to ramp up production. Last year, it announced plans to invest $6 billion to create facilities in Denmark as part of a multiyear goal to increase capacity. However, some of those plants won’t come online until 2029.

More recently, Novo Nordisk’s parent company, Novo Holdings, announced it would be acquiring drug manufacturer Catalent. Following the deal, Novo Nordisk will acquire multiple manufacturing sites that could help to increase its capacity by as early as 2026.

In the short term, Novo Nordisk has been using multiple contract manufacturers (Catalent being one of them) to help fill orders. And that’s something it may need to rely on further until its capacity increases. Now, with demand potentially rising even higher in the near term, there could be an even greater need to secure more supply.

Sales have been strong and could go higher

While there are challenges ahead for Novo Nordisk, not having enough supply to meet surging demand can be a good problem — especially if the company has a plan to bolster its supply. The company appears to have such a plan.

Last year, it generated impressive results, with revenue totaling 232.3 billion Danish kroner ($34.8 billion) rising by 36% when factoring out the impact of foreign exchange. And its net profit of 83.7 billion Danish kroner ($12.6 billion) grew by 51%.

Novo Nordisk’s sales and profits have been flying high thanks to the growing popularity of Wegovy and Ozempic, and that’s a trend that doesn’t seem to be slowing down anytime soon. This month, retail giant Costco Wholesale has begun offering access to Ozempic and other popular weight-loss treatments via Sesame, which runs a direct-to-consumer healthcare marketplace.

By making these drugs more accessible, Novo Nordisk’s impressive numbers could look even better in the future. Although it may be a challenge to increase supply, the company is in a solid position right now.

Should you invest in Novo Nordisk?

Novo Nordisk is an excellent healthcare company to invest in. Although its valuation may not look cheap as the stock trades at 46 times its trailing earnings, there’s a lot of long-term growth ahead.

The company has the potential to become a trillion-dollar stock, considering the massive opportunities in the weight loss market. If you’re a long-term investor willing to buy and hold for years, Novo Nordisk could be a fantastic stock to add to your portfolio today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends CVS Health and Novo Nordisk. The Motley Fool has a disclosure policy.

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