Where Will Novo Stock Be in 10 Years?

Novo (NYSE: NVO), a Denmark-based pharmaceutical leader, has made important breakthroughs over the past decade. The company initially benefited from its advances, with the stock climbing to an all-time high in 2024. However, the company has encountered clinical and commercial setbacks since then and has lost substantial market value over the past two years. Could Novo bounce back? How might the stock perform over the next decade?

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Trying to get back on track

Novo has been a leader in the diabetes market for decades. It continues to generate much of its sales from its diabetes products, including Ozempic and Rybelsus, among others. Novo has also become one of the top players in the anti-obesity market thanks to Wegovy. The good news for the company is that over the next decade, its core areas of expertise should expand significantly.

According to some projections, the worldwide prevalence of diabetes will rise over the long run, driven by several factors, including an aging population (type 2 diabetes, which accounts for the overwhelming majority of diabetes cases, often comes with age). Similarly, the obesity market appears to be on a northbound path. One problem Novo faces is that U.S. patents on the active ingredient in Ozempic, Wegovy, and Rybelsus will expire in 2032, potentially inviting cheaper generic competition.

On the other hand, the company should make significant clinical and regulatory progress within the next five years. For instance, Novo is racing toward the approval of CagriSema, a next-gen diabetes and obesity medicine, which could earn the green light by year-end. One advantage of CagriSema is that it combines semaglutide, a GLP-1 medicine, and another one of Novo's products, Cagrilintide (which mimics the amylin hormone that plays a role in appetite suppression), into a single drug that has proved more effective than both of its individual components in head-to-head Phase 3 obesity studies.

However, CagriSema fell short of the 25% mean weight loss Novo hoped for, which might have given it a competitive edge against its biggest rival, Eli Lilly (NYSE: LLY). Still, Novo has several other products that could make progress. Amycretin, a Phase 3 asset, also mimics the action of the GLP-1 and amylin hormones, combining both into a single molecule. It posted excellent early stage results.

Novo's UBT251, which it licensed from a China-based company, mimics the action of three separate gut hormones, an approach that could lead to even greater efficacy. Novo also has several oral weight loss candidates, including one that could be taken weekly -- potentially a significant differentiator, provided it can earn approval. And beyond these diabetes and weight loss products, Novo is working hard to diversify its lineup. It is developing several products in other areas, including blood-related disorders.

Not an easy road ahead

Five years should be enough time for Novo to rejuvenate its lineup by launching brand-new products in its core markets (and others), significantly improve its financial results, and establish a solid enough foundation -- including a strong pipeline -- that will help it perform well through 2036. So, provided its leading Phase 2 and Phase 3 candidates perform well, Novo could bounce back.

However, there is significant uncertainty, even beyond potential clinical setbacks, a risk Novo has tried to mitigate by significantly expanding and diversifying its pipeline. For instance, the company will likely face increased competition in its core market. There are now dozens of weight loss medicines in development across the pharmaceutical industry, and some of them look rather promising.

Second, perhaps these markets won't grow as fast as expected. The success of diabetes and weight loss drugs could reduce the prevalence of the conditions they target compared to what the projections estimate. Novo and its industry peers could also face increased regulatory headwinds, especially in the U.S. We could see more medicines selected for drug price negotiations in the country.

That said, even with all these caveats, my view is that Novo is an attractive stock to buy. The company's pipeline in diabetes and weight loss is deep and arguably second only to Eli Lilly's, if that. Investments in other areas should pay off eventually, while the company also maintains a solid dividend program. Novo could deliver competitive returns over the next decade, especially with dividends reinvested.

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.