Why Is Everyone Talking About Novo Nordisk?

Novo Nordisk (NYSE: NVO) is well-known for its strong position in the GLP-1 market. The company's brands in this area, including Wegovy and Ozempic, have practically become household names. However, that hasn't enabled the drugmaker to perform well over the past couple of years. Novo Nordisk has significantly lagged the broader equity market during this period. The company may not have bottomed out yet, either. Recent developments have sent the stock down 13% over the past week, as of writing, and perhaps more is to come. What's going on with Novo Nordisk?

A clinical setback rocks the stock

Despite being a leader in the GLP-1 market, Novo Nordisk has lost some ground to its biggest competitor, Eli Lilly (NYSE: LLY). The Denmark-based pharmaceutical leader has been trying to get back on track by developing newer products. But it recently hit more stormy seas following a clinical setback. Novo Nordisk's ziltivekimab, an investigational medicine being developed to reduce the risk of major adverse cardiovascular events in people with atherosclerotic cardiovascular disease, chronic kidney disease, and inflammation, failed to hit its primary endpoint in a phase 3 clinical trial.

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All hope isn't lost for ziltivekimab. It is still undergoing studies in other indications. However, things aren't looking too good for this investigational candidate that Novo Nordisk hoped would help diversify its lineup beyond its diabetes and weight-loss portfolios.

A somewhat disappointing update

Novo Nordisk reported its second-quarter results on Aug. 4. The company's revenue and earnings were mostly in line with expectations, which weren't very high. Novo Nordisk's net sales grew by 2% year over year to 78.5 billion Danish kroner ($12.1 billion). Novo Nordisk's adjusted earnings per share came in at 6.18 DKK ($0.95), up 5% year over year. Novo Nordisk also slightly revised its fiscal year 2026 adjusted sales guidance upwards.

However, the market focused on sales of the company's oral GLP-1 for weight loss, the Wegovy pill. Why is this product important? The oral weight-loss segment is perhaps the one corner of the market where Novo Nordisk is outperforming Eli Lilly. Novo Nordisk launched oral Wegovy in January, and it has been a major hit. The hope is that it will continue to outpace Eli Lilly's Foundayo, which was approved in April. Alas, in the second quarter, Wegovy pill sales came in slightly short of expectations. That's one reason the company's shares fell on the heels of its earnings release.

Where does the stock go from here?

These recent developments arguably change very little to Novo Nordisk's long-term thesis. The phase 3 clinical trial failure for ziltivekimab isn't great news, but the company's future still depends mostly on its weight-loss and diabetes portfolios. And while diversifying its lineup would help somewhat, Novo Nordisk has already made significant progress toward that goal this year. The company's denecimig, an investigational treatment for hemophilia, performed well in phase 3 studies.

Also, despite the Wegovy pill's slight sales miss, Novo Nordisk remains the leader in that niche by a reasonable margin. It's an important strategic market for Novo Nordisk, as it has helped the company expand its weight-loss business by attracting mostly new patients who dislike needles. Further, Novo Nordisk is bracing for important clinical trial readouts. For instance, Novo Nordisk's phase 3 pipeline includes Amycretin, a dual GLP-1 and amylin (it mimics the action of both of those gut hormones) agonist that looks highly promising.

The dual pathway approach has proved incredibly successful, as Eli Lilly's Zepbound has demonstrated. And considering Amycretin is being developed in both oral and subcutaneous formulations, it could be a massive commercial success if it posts strong phase 3 clinical trial results. Novo Nordisk's UBT251 looks perhaps even more promising, partly because it mimics the actions of not two but three gut hormones. Novo Nordisk licensed UBT251 from a China-based company, which highlights another important point.

The company has the financial flexibility to make deals -- including full-blown acquisitions of smaller biotechs -- to boost its lineup and pipeline. UBT251 has shown strong efficacy in phase 2 studies for diabetes and weight loss; it could be another next-gen product that will help Novo Nordisk bounce back. There is the possibility that Novo Nordisk will encounter more clinical setbacks. Investors should keep that in mind. But overall, for those bullish on the rapidly growing GLP-1 space, Novo Nordisk remains a top stock to consider buying, especially following its recent dip.

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.