Rivals may burst shares frenzy for weight-loss drug firm Novo  

Wweight loss drug Wegovy is made by Denmark's Novo Nordisk.

A frenzy around obesity drugs made Novo Nordisk Europe’s biggest stock-market success story of 2023, but repeating the trick won’t be so easy.

Shares of Novo, which makes the diabetes drug Ozempic and weight loss medicine Wegovy, have risen 42% this year, as investors latched on to the growth potential of a market that some analysts predict could reach $100bn by 2030. 

The rally made it Europe’s biggest company and pushed the Danish firm’s value past the size of its domestic economy.

But 2024 is a different ball game. Analysts see just 9% upside on average in the next 12 months, while about one-third of respondents to Bloomberg’s recent Markets Live Pulse survey expect weight-loss stocks to become laggards next year. 

Among Novo’s challenges: Rising competition, issues with producing enough of its blockbuster drugs, and a valuation that’s getting stretched. 

“They’re an excellent R&D [researach and development] company and they’re very well managed,” but too much is priced in, said Nick Cameron, a portfolio manager at Antipodes Partners. “We can’t make the valuation work at these levels.” 

The comments echo those of GAM Investments director Niall Gallagher, who cut his holdings of the shares amid the “hype” surrounding the class of drugs known as GLP-1 receptor agonists. 

Novo trades at about 30 times analysts’ estimated earnings for the next 12 months, more than double the valuations of European big pharma peers like Roche and Sanofi. Still — they are cheaper than shares in Eli Lilly, the maker of rival drugs Mounjaro and Zepbound, which trade at about 46 times projected earnings.

“A lot of people are talking about whether Lilly and Novo have run their course,” said Ailsa Craig, co-lead manager of the International Biotechnology Trust. 

“Have the huge sales numbers been factored into their valuations now and is it sort of a bubble? That’s a big debate.” 

Novo is set to maintain its dominance of the market in 2024, according to Bloomberg Intelligence. 

But more competition is looming: Zepbound, which is cheaper than Wegovy, is now available in US pharmacies and is expected to get European authorisation early next year. 

Other companies are also getting in on the action, with Zealand Pharma and partner Boehringer Ingelheim undertaking late-stage trials, and data due next year on an obesity pill made by Amgen.