Why Novo Nordisk Stock Tumbled on Tuesday

Key Points

• What was good news for a rival was hardly a boon for the Danish pharmaceutical.

• This concerned a weight-loss drug soon to be submitted for regulatory approval.

• 10 stocks we like better than Novo Nordisk ›

Novo Nordisk (NYSE: NVO) has risen to fame and prominence with its twin drugs Wegovy and Ozempic, with the former being particularly hot since it's approved for weight loss. However, on Tuesday a powerful rival to the company reported positive top-line results for a drug that could provide very stiff competition to the Danish pharmaceutical's top medication.

Investors didn't react happily to this news, ultimately trading out of Novo Nordisk to leave the healthcare stock with a nearly 2% loss in price. This was on a day when the bulls were having their fun, as the S&P 500 index crept 0.4% higher.

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A tough pill to swallow

That competitor was no less a company than the current titan of the U.S. pharmaceutical industry, Eli Lilly. That morning, it published the top-line results of a late-phase clinical trial of a GLP-1 weight-loss treatment it's been developing, and the results were discouraging for present and potential rivals.

Image source: Getty Images.

The drug, orforglipron, met all of its primary endpoints and also cleared the hurdle of its key secondary endpoints. On average, it produced weight loss of 10.5% of body weight in those administered the medication versus just over 2% for participants taking a placebo. Orforglipron was also found to meaningfully lower blood sugar levels, an important effect for those suffering from diabetes.

Not only is Eli Lilly's drug clearly efficacious, it also has the great advantage of being delivered in pill form. Both Wegovy and Eli Lilly's one approved weight-loss drug, Zepbound, must be administered via injection, a far less comfortable and convenient means of delivery.

A hot market gets even hotter

This latest development only illustrates the mounting competition Novo Nordisk continues to face in the white-hot obesity segment. Every other person in the U.S., it seems, is eager to get their hands on such medicines. Although this alone should keep Novo Nordisk's top line growing, it's going to have to rise to such challenges if it hopes to remain a major player in the weight-loss market.

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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.