Could This New Opportunity Be Worth Billions for Novo Nordisk?

Novo Nordisk (NYSE:NVO) has a problem. The company generates the lion's share of its revenue from its GLP-1 portfolio, but over the past couple of years, it has lost market share to its biggest rival, Eli Lilly (NYSE:LLY), while encountering several clinical setbacks. That's why the stock has significantly lagged broader equities. Can Novo Nordisk bounce back? If it does, it will likely be because it finds a way to better compete against Eli Lilly in the GLP-1 space. And recent developments suggest Novo Nordisk may soon make headway in an arguably underserved corner of the market. Here's what investors need to know.

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Semaglutide aces a pediatric clinical trial

Novo Nordisk's semaglutide is the active ingredient in several of its GLP-1 therapies, including Ozempic, Wegovy, and Rybelsus. Wegovy is approved for chronic weight management for adults and pediatric patients aged 12 and older. Recently, the Denmark-based pharmaceutical giant reported results from a phase 3 clinical trial for semaglutide in patients between six and 11, more than 85% of whom had Class II or Class III obesity.

Novo Nordisk found that 40.4% of patients on semaglutide were no longer classified as obese 68 weeks after starting treatment. Meanwhile, 0% of patients in the placebo group achieved this feat. Safety and tolerability during the study were consistent with what we already know about GLP-1 drugs. This clinical win positions Novo Nordisk to secure approval for semaglutide in the relevant patient population.

How large is this market?

Pediatric obesity is a serious problem. According to the U.S. Centers for Disease Control and Prevention (CDC), 22.1% of children between six and 11 fell in the obese category between August 2021 and August 2023. This is a population of more than 20 million people, but let's use that number to estimate Novo Nordisk's potential addressable market. Taking 20% of the initial 20 million leaves us with four million children between six and 11 who are obese.

That's fairly small compared to semaglutide's total addressable market across all indications, but it's not nothing either, especially since we are just talking about its potential target market in the U.S. alone.

Further, as Novo Nordisk argues, childhood obesity is projected to continue growing, is a strong predictor of adult obesity, and contributes to several health-related risks. So, it's important to treat it as early as possible, and now, there is clinical evidence that semaglutide can help do that for patients between six and 11.

Is Novo Nordisk on the verge of bouncing back?

If semaglutide earns approval for chronic weight management in children aged six to 11, it won't, by itself, be a game changer for Novo Nordisk. However, it could help slightly move the needle, especially given that it's another part of the company's multi-pronged strategy to regain some market share in its core therapeutic area.

Earlier this year, Novo Nordisk earned approval for a high-dose formulation of Wegovy that posted better weight-loss numbers than the original version. HD Wegovy's efficacy even appears to rival Eli Lilly's Zepbound, the current market leader. This new launch could help Novo Nordisk retain some patients who might otherwise have switched to Zepbound. Also, Novo Nordisk launched the Wegovy pill in January.

This oral formulation of its famous drug has proved successful in attracting brand-new patients who had never taken GLP-1s before. Now, Novo Nordisk might be racing toward an approval in patients aged six to 11, an indication Zepbound still doesn't have. Further, Novo Nordisk has several pipeline candidates that should make meaningful progress over the next couple of years, and could have a much better lineup by the end of the decade. Novo Nordisk still looks likely to remain one of the leaders in the fast-growing GLP-1 market, and after the beating it took in recent years, it may be worth investing in the stock at current levels.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.