Why Novo Nordisk Stock Dropped on Monday
Key Points
No pharmaceutical stock investor likes it when one of their holdings slices drug prices.
This one is reducing the costs of a top medicine in a huge Asian market.
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Since pharmaceutical companies rely on the revenue generated from approved medicines, price cuts can put pressure on their fundamentals. That was the dynamic behind Novo Nordisk's (NYSE: NVO) fall on the stock market Monday; news that its Wegovy would cost less in a major market drove the company's shares down by nearly 2%.
Chop, chop
Novo Nordisk stated only that it was reducing the prices of its highly popular drug in China, although it did not provide details on the specific reductions. Reuters cited a report from Chinese media outlet Yicai stating that the two highest monthly doses of Wegovy received a 48% cut apiece, to between 987 yuan ($141) and 1,284 yuan ($183).
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In a statement Novo Nordisk provided to Reuters, the Danish pharmaceutical company wrote, "We believe this pricing adjustment in China will further help alleviate the treatment burden for patients and improve their quality of life."
The move likely has more to do with staying competitive in the massive Asian country. The company's patent on semaglutide, the active ingredient in the drug, expires in 2026. Local pharmaceutical companies are currently developing either their own versions of semaglutide or similar weight-loss treatments.
Sustained competitive pressure
This isn't a new tactic by Novo Nordisk, which has faced intense competition from both approved medicines (like Eli Lilly's Zepbound) and third-party "compounders" (makers of custom drugs) that use legal loopholes to continue concocting Wegovy-like products. In November, for example, the company reduced Wegovy prices by as much as 37%.
This hot, competitive landscape is a fact of life for Novo Nordisk, but I think management is being as reactive and strategic as it can to try and cope. Meanwhile, its activity in the lab is yielding results; it recently earned approval from the U.S. Food and Drug Administration (FDA) for an orally administered version of Wegovy.
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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.
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