Is the Novo Nordisk stock price drop warranted?
And should you be worried?
A lot of great things have happened (too much to list) since I last wrote about Novo Nordisk in my original “Weighing in on Novo” post in November 2020. Some people say “no news is good news”, so I haven’t written anything about Novo since then. But recently a few friends and colleagues of mine have been asking me about the implications of the FDA’s RTF on the semaglutide (sold under the brand names Ozempic and Rybelsus) 2.4 mg label expansion, which has now come up often enough in my life that it’s prompted me to sit down and write this post on a sunny Sunday afternoon. Opening up the charts again, it appears that Novo stock has dropped to around the same price it was when I first wrote about the company. This sparked my curiosity to dig a little deeper to understand if it’s warranted.
TLDR (in case you don’t have the time); absolutely not warranted, in my personal opinion.
If you do have the time to read, here’s a few things to consider:
1). The semaglutide data, published last month in the prestigious New England Journal of Medicine, is essentially first-in-world and blows the doors off obesity with staggering numbers and statistically significant p-values (p<0.001). Basically, in a study with thousands of individuals, people saw an average 15% weight loss (compared to 2.4% placebo) and almost a third of these people lost more than 20% of their weight. This is probably what prompted the price rise to mid-70s per share when the news broke out. Even Wall Street Bets started writing about it, which is unexpected and holds some entertainment value.
2) On the heels of this data, Novo Nordisk applied for a label expansion in the US but got dinged by the FDA for manufacturing issues, specifically CMC issues with Novo’s proposed manufacturing plans at a new facility plant in Denmark. Although CMC is a hurdle many investors overlook and get bitten by, especially for small-to-mid-cap biotechs, it’s probably safe to say that a big pharma company like Novo Nordisk has the capacity and experience/expertise to eventually sort it out (if there’s an actual problem in the first place, which brings me to the next point):
3) Is there really a problem, or is the FDA out to lunch with Eli Lilly? The space is very competitive and Eli Lilly is trying hard by recently showing that their experimental diabetes drug (tirzepatide) reduced patients’ blood sugar and body weight more than semaglutide. The problem with this news is that they compared against the original 1 mg semaglutide dosage, not the 2.4 mg dosage discussed above in the label expansion. If you really deep dive on the data, you’ll find that Eli Lilly tested three doses of tirzepatide against the 1 mg semaglutide dose, posting weight loss percentages ranging from 8.5% on the low dose to 13.1% on the high dose (compared to 6.7% for 1 mg semaglutide). Compare this to the 2.4 mg semaglutide dosage stats (average 15% weight loss and almost a third of these people lost more than 20% of their weight). So is the FDA stalling Novo and, if so, what’s the advantage (if any) to doing this?
4) Over the last few months, Novo Nordisk has been systematically buying back its shares. Although it’s not 100% a factor, it can be seen as a signal that a company has extra cash on hand to make the re-purchase and the confidence that they’re buying back the shares at what they believe is likely a lower price than they will be in the future. In general, a company knows a lot more about its stock performance analytics than the general public does, so this may be interpreted as a vote-of-confidence for Novo’s future.
In general, my opinion is that this FDA RTF (refusal-to-file) sounds a lot more ominous on paper until you actually read the details, and it’s not clear to me that most biotech retail investors and generalists have the breadth of view or time to immediately understand the longer-term implications, which may have sparked the recent panic selling that brought down Novo stock back down to the 60s. My prediction is it’ll be back up into the mid-high 70s by the end of the calendar year, and some experts are even predicting low 80s (representing 18.7% upside).
Taken together, the recent price drop in Novo Nordisk stock is unwarranted, in my opinion. This is not financial advice, I just like the stock (although I do not own any at the time of this writing). As always, please DYOR (do your own research).
P.S. Not investment advice. Read the Liability/Disclaimer subsection to learn more.