Why Novo Nordisk Stock Bumped Higher on Friday

Key Points

• The Federal government might boost its support of weight-loss drugs soon.

• According to a media report, it's contemplating a five-year, experimental program that would subsidize their costs for qualifying patients.

• 10 stocks we like better than Novo Nordisk ›

Unexpected news of a potential support program from the federal government boosted the share prices of weight-loss drug developers on Friday. The poster boy for that still rather small group, Wegovy/Ozempic maker Novo Nordisk (NYSE: NVO), understandably saw a stock price lift that day. It rose by more than 2%, contrasting well with the 1.6% slide of the S&P 500 index.

Federal help for obesity drugs?

That news came from The Washington Post, which published an article stating that the Trump administration is planning an experimental program that would cover the costs of such medications.

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Citing documents from the Centers for Medicare and Medicaid Services (CMS) it had obtained, the newspaper said the plan would be implemented by state Medicaid administrations. It would also be utilized by Medicare Part D insurance plans. These entities would be allowed to cover weight-loss drugs for qualifying patients.

At the moment, Medicare generally covers such treatments for patients who suffer from type 2 diabetes. Both Novo Nordisk's Wegovy and rival Eli Lilly's Zepbound are essentially versions of predecessor diabetes drugs. Some private insurance plans cover obesity medications.

The Post wrote that the experimental program will last for five years.

Massive potential impact

Novo Nordisk hasn't yet commented on the article, but we can be sure the company is excited about the prospect. Combined, Medicare and Medicaid are immense programs. Even if only a few states are willing to cover weight-loss treatments through them, the company could experience a surge in sales. For the stock's investors, this is a potentially very impactful development well worth monitoring.

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