Novo Has Big Plans for 2030. Should You Buy the Stock Now?

Novo (NYSE:NVO) has faced significant challenges over the past couple of years. The company's shares have dropped by more than 60% as a result. However, the drugmaker is looking for ways to recover. Management set several goals for 2030 that could enable Novo to improve its financial results. Let's look into whether Novo can achieve these goals and deliver competitive returns over the next few years.

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Novo's master plan

Novo's recent challenges stem from the fact that it generates most of its money from its GLP-1 products, including Wegovy, Ozempic, and Rybelsus. However, it has lost market share in this area to Eli Lilly (NYSE:LLY).

Novo wants to make up ground in this market while also diversifying its lineup and pipeline over the next few years. By 2030, Novo aims to have more than five products generating several billion dollars in annual sales each. All three GLP-1 products mentioned above fit that description, at least as of last year, but they will likely encounter significant competition over the medium term.

Novo will have to launch at least several brand-new products to reach its goal, and some of its candidates look promising. For instance, the company is awaiting approval for CagriSema. This drug mimics the action of the GLP-1 and amylin hormones and beat Wegovy in a head-to-head Phase 3 study in obesity.

CagriSema looks promising, as do several other products Novo is working on. The company's zenagamtide, a next-gen diabetes and obesity product, is being tested in Phase 3 clinical trials after posting outstanding early-stage results.

Both CagriSema and zenagamtide appear to have blockbuster potential, and several other candidates should enter late-stage studies over the next few years. So, this goal is achievable for Novo. There are others.

The company will also seek to have at least five Phase 3 diabetes and obesity programs in its pipeline by 2030, as well as at least five Phase 3 programs in other therapeutic areas. But what will Novo's financial performance through 2030 look like? The company aims to grow its revenue at an annual rate comparable to that of its industry peers.

Top-line growth in the high-single-digit or low-double-digit percentages is typically considered good for pharmaceutical giants. Another exciting goal Novo is looking to achieve by 2030 is to expand its capacity to serve 10 times as many obese patients with oral GLP-1 products and reach more than 60 million patients in total. For context, the company reached over 45.6 million patients last year.

Is the stock reasonably valued?

There are at least two questions investors should consider. First, can Novo actually reach these goals? Second, even if it does, will the company's stock perform well through the next four years?

On the first question, my view is that Novo is fairly well-positioned to expand its lineup while generating much stronger revenue and earnings growth than it did this year. Novo has relied on licensing deals over the past couple of years to boost its lineup, and some of that work should pay rich dividends down the road.

For instance, Novo licensed UBT251 from a China-based drugmaker. What's so special about this investigational obesity medicine? It mimics the actions of three separate gut hormones, a mechanism thought to improve efficacy. And so far, in clinical trials conducted in China, UBT251 has shown excellent results.

Novo also licensed a once-weekly oral GLP-1 candidate, HRS-1596, from another company. The current oral weight-loss medicines are taken daily, and they have helped expand the market by attracting new patients who dislike subcutaneous injections. A weekly option, if it proves effective, could be even more successful.

Novo should also see top-line growth improve as it launches CagriSema and other new medicines. True, there is some risk and uncertainty. Novo has faced clinical setbacks in recent years, and more headwinds along those lines might sink the stock. But the depth of its pipeline grants it multiple shots on goal, so to speak. Now on the second question, note that Novo is trading at about 12x forward earnings, compared to an average of 19.2x for healthcare stocks.

If revenue and earnings growth match industry averages over the next few years -- and I think there is a good chance of that happening -- while Novo replenishes its lineup and especially its pipeline (granting it solid growth prospects beyond 2030, and forward multiples on par with industry averages), the stock could deliver excellent returns from 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.