Novo's CEO Called Ozempic's Patent Cliff the "Elephant in the Room" Yesterday. Is the Stock Still a Buy?

Every pharmaceutical company dreams of having a pioneering blockbuster drug, i.e., one whose annual sales top $1 billion. But that's not a ticket to permanent, automatic success; case in point: Novo Nordisk (NYSE:NVO). The company rose to fame (after years of relative obscurity) with the semaglutide GLP-1 molecule in the twin blockbusters Ozempic and Wegovy.

Over the past few years, however, the semaglutide siblings have come under competitive fire from numerous directions. As if that weren't enough, at Novo's investor day on Monday, CEO Mike Doustdar highlighted another risk making the company vulnerable -- semaglutide's looming patent cliff. Investors reacted by trading out of Novo's American Depositary Shares (ADSes), resulting in a nearly 8% loss. This was their steepest one-day fall in over six months. But perhaps that has made Novo a bargain buy.

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A pachyderm-sized problem

Doustdar stated bluntly during Novo's event, "Let me get the elephant in the room out. Semaglutide LOE [loss of exclusivity] is what's in most people's mind and rightfully so."

For those unfamiliar, in the U.S., a newly approved drug is granted a period of market exclusivity by the Food and Drug Administration (FDA).

Molecules like semaglutide are also protected by one or more patents, which last 20 years from the date of application. When a drug passes that two-decade stretch, it falls off the "patent cliff," and other companies are allowed to produce generic or biosimilar versions. Almost always, these products are significantly less expensive and drive sales of the original product down steeply.

First family

Obesity care is the motor of growth for Novo). Weight-loss drug sales grew by 26% when measured in the company's native currency, to over 82 billion Danish kroner ($12.6 billion) in 2025. That was 27% of Novo's 309 billion kroner ($47 billion) in revenue that year.

So it's understandable that investors were not comfortable being told (or reminded) that the clock is ticking for the molecule. Its web of patents begins expiring in December 2031.

In his remarks at the conference, Doustdar said that Novo's pipeline should help ease the fall from the semaglutide patent cliff. He and his team aim to bring at least five "multi-blockbuster" drugs to market by 2030. These could generate over 150 billion kroner ($23 billion) in sales, after accounting for the likelihood that certain development programs might not succeed.

In a subsequent interview with CNBC, the CEO said the company is also mulling possible mergers and acquisitions (M&A) to bulk up through asset purchases.

5 billion reasons to worry?

Novo has a long pipeline, but even so, bringing only a single drug to market that hits $1 billion in yearly sales is a major feat for any pharmaceutical company — even a massive one, and Novo isn’t massive. Five feels like a stretch goal, as they say in fundraising. While it's certainly possible, it doesn't seem likely. Doustdar's stated goal appears to me to be more of an attempt to comfort skittish investors than anything else.

I'd say there's more scope for shoring up with M&A, since Novo has been fattened by those sweet Wegovy/Ozempic cash flows.

It had around $6.9 billion in cash at the end of June. Yet although that's a lot of scratch, would-be acquisitions with truly promising pipeline programs and/or successfully commercialized medicines are few and far between. And there are plenty of deep-pocketed operators on the hunt, not least of which is Novo's monster rival in the weight-loss segment, Zepbound developer Eli Lilly (NYSE:LLY).

A high-yield stock with strengths

So, with a potentially damaging fall from the patent cliff in the near future, and the high possibility of not delivering all five of the hoped-for blockbusters, should investors bail from Novo?

I wouldn't be so quick to make that move. Despite the competitive hammering they've taken, the company's obesity drug sales are still considerable, with 16% year-over-year growth in the second quarter. There's also enough cash to fund the company's semi-annual dividend, which currently yields 4.5%. That makes it a high-yield dividend in an industry that frequently eschews shareholder payouts altogether.

With that cash on hand, and plenty more on the way, Novo should have enough to maintain and add to its pipeline. It might also be sufficiently fortunate to happen upon a high-potential asset buy. Meanwhile, its stock is cheap enough -- on both a pure price and valuation basis -- to take a flyer on. This is definitely a riskier-than-average pharmaceutical stock, but the company still has some significant advantages. So I think there's more upside than downside for it after Monday's sell-off.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.