Novo Nordisk Has a Fresh New Name -- but It Still Faces the Same Old Problems

In some ways, Novo Nordisk (NYSE: NVO) clearly has an image problem. It effectively created the GLP-1 weight-loss drug market when it launched Wegovy. But it quickly lost the lead in this emerging niche to competitor Eli Lilly (NYSE: LLY). Now, Novo Nordisk has a chance to make a comeback as it launches a pill version of its GLP-1 drug. As it undertakes this effort, the company has chosen to rebrand, an odd decision at such a critical time. Here's what may be going on.

Novo Nordisk: When a name change isn't really a name change

The key sentence in the company's announcement about its name change is this one: "As part of this, we will embrace the shorthand 'Novo' as our day-to-day name, while Novo Nordisk A/S remains our legal global company name." So the company isn't really changing its name; it is simply changing its branding.

Image source: Getty Images.

It is more of a refresh than a reset, which isn't necessarily a bad thing. After all, Novo Nordisk fumbled in the GLP-1 weight-loss space after it got an early lead. And some of the problems it faced were self-inflicted, noting that it couldn't keep up with demand. That allowed generic competitors to copy its product earlier than would normally have happened. When Eli Lilly's weight-loss drugs proved more effective than Wegovy, Novo Nordisk's early lead evaporated, and it became the also-ran.

Investors reacted by selling the stock, which is down 70% from its 2024 high, as of this writing. What's interesting is that Novo Nordisk remains a highly profitable pharmaceutical company. And it offers an attractive, well-covered 4.1% dividend yield. There are some good reasons to consider buying it, noting that the stock's roughly 11x price-to-earnings ratio is well below its five-year average P/E of roughly 25x and Eli Lilly's P/E of nearly 39x.

Perception is part of the problem, but not the only problem

But investors are a fickle bunch, and being number two is a problem. This is why Novo Nordisk is working so hard to make its Wegovy pill a success. As with its GLP-1 shot, Novo Nordisk was first to market with a GLP-1 pill. But this time, it is better prepared to meet demand. And, in fact, it is directly courting demand by focusing on selling its Wegovy pill at a low price point.

That's a near-term problem, however, because it will hamper the healthcare company's profitability. The long-term goal is for volume to more than offset the lower price, which is a solid and likely achievable goal. Only Wall Street tends to have a myopic focus on the here and now, so the company isn't likely to gain traction with investors until there's concrete evidence that this approach is working. That could take a little while.

In an attempt to highlight the changes in its business, or perhaps to just drum up some publicity, Novo Nordisk is making what amounts to a surface change. It is shortening the name it uses publicly to Novo. The purpose is to highlight that the company is "different" now than it was just a short while ago, which is true. But that doesn't change the fact that Novo Nordisk still lags Eli Lilly in the drug niche it basically created.

Novo: Not bad, but it doesn't change anything

In fairness, companies rebrand all the time. So Novo Nordisk becoming Novo isn't really a bad thing. It seems like extra work at a critical time for the business, but it is clearly intended to highlight that this drug maker is charting a new course. That's true, but investors who were worried about the company's low price and high-volume GLP-1 approach probably still won't find the name change a compelling enough reason to buy the stock.

Reuben Gregg Brewer 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.