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Why Novo Nordisk Stock Dropped on Monday, but Eli Lilly and Him & Hers Health Popped

Source The Motley Fool

Novo Nordisk (NYSE: NVO) stock slipped 1.7% through 12:10 a.m. ET Monday on a pair of news items with which investors seem less than thrilled:

First, Novo Nordisk is expanding its program to sell Wegovy GLP-1 weight loss drugs at discounted prices. Second, Novo is spending $2 billion to license an entirely different GLP-1 drug from China.

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In contrast, Eli Lilly (NYSE: LLY) and Hims & Hers Health (NYSE: HIMS) both jumped on today's news. They rose 2.7% and 7%, respectively.

Rolling back prices on Wegovy

Let's take Novo Nordisk's news items one at a time, starting with Wegovy. Novo Nordisk announced earlier this month that its NovoCare Pharmacy would sell Wegovy direct to cash-paying consumers who don't use insurance to pay for their prescriptions. Each of the company's dose strengths would sell for $499 for a one-month supply. Today the company expanded the program, saying the $499 price will be available at local pharmacies, and not just for orders placed with NovoCare.

Previously, pharmacy cash sales were priced at $650 per month, so Novo has effectively cut prices by 23% for a big part of its market. Novo Nordisk investors may be worrying that Novo is losing market share, and may need to cut prices even further to compete with price cuts announced by Eli Lilly. Last month, Lilly cut the price of at least one dosage size of its competing Zepbound GLP-1 drug to $349, when purchased directly from Lilly.

Long story short, investors seem to be reading this news as bad for Novo (less revenue and maybe losing market share), but correspondingly good for Eli Lilly, which is still underpricing its rival on at least one dosage.

At the same time, Hims & Hers Health stock is continuing to gain strength on the back of reports out last week, that the company's exit from the GLP-1 market may not be as imminent as feared. On Wednesday last week, The Wall Street Journal reported that Hims & Hers "will keep offering pharmacy-made, or compounded, versions of Ozempic and Wegovy tweaked to individual prescriptions."

As the Journal explained, "current law ... allows compounding pharmacies to make special, individualized versions of drugs that aren't available commercially." So while Hims & Hers has benefited mightily from being able to mass market Ozempic, Wegovy, Mounjaro, and Zepbound lookalikes to fill a gap in supply from the drugs' inventors, and while that supply gap is going away, Hims & Hers may still be able to market copycat drugs in smaller quantities, and not be forced out of this market entirely after all. Such sales might even offer Hims & Hers better profit margins due to their personalization.

Novo and Lilly obviously aren't happy about this, and have filed lawsuits seeking to force drug compounders like Hims & Hers out of the market. But for the time being this legal question remains unresolved -- and Hims & Hers remains in the GLP-1 business.

Novo Nordisk goes big in China

In other news, Novo Nordisk announced today that has secured an exclusive license to develop, manufacture, and market UBT251, a weight loss drug from China's The United Bio-Technology (Hengqin) Co. Novo describes UBT251 as "a triple agonist of the receptors for GLP-1, GIP, and glucagon in early stage clinical development for the treatment of obesity, type 2 diabetes, and other diseases."

Novo presumably hopes the three-pronged approach will perform even better than its current drugs Ozempic and Wegovy. Novo will pay its Chinese partner $200 million up front, and may pay a further $1.8 billion over time. It's a relatively small bet that could pay off bigly for Novo if it works. But it also highlights Novo's recent failures to improve its own drugs' performance without help.

Combined with positive news for Hims & Hers, and the potential threat to revenues from Novo lowering its prices, this helps explain why Novo Nordisk stock, in contrast to Eli Lilly and Hims & Hers, is losing ground today.

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

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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