Novo Nordisk's shares are expected to surge by another 20% over the next 12 months as the company prepares to release a new batch of weight-loss medications designed to treat obesity in the near future, according to Barclays Capital.
The success of Wegovy's product in weight loss, as well as endorsements by celebrities and social media influencers, including Elon Musk, chief executive officer of Tesla, catapulted it into the limelight.
There is evidence that the drug, when administered on a weekly basis, can cause a loss of 12-18% of body weight over long periods of time, as it activates hormones that regulate blood sugar levels, slow the digestion process, and decrease appetite throughout the body.
In the latest World Health Organization report, it is estimated that more than one billion people around the globe are clinically obese, which means there is a huge market for obesity treatments out there.
Some investors, however, believe that Novo's stock prices have already factored in the growth potential of the company. In fact, Novo's shares have risen 137% since the FDA approved the drug in June 2021, when the drug went on sale.
It is true that Novo may seem expensive, with a price-to-earnings ratio trading close to 45 times its five-year high, but Emily Field, head of Barclays European pharmaceuticals equity research believes it is not a true representation of Novo's future drug discoveries that are on their way.
According to Field, obesity seems to have become the story of the decade. Our advice to clients is that, when looking at a stock like Novo Nordisk, you might not only look at its P/E for this year, but you might also look at it for a few years, and then you might find that it is relatively cheap relative to some of the other pharma companies."
The New York Stock Exchange, London, and Frankfurt all trade Novo Nordisk shares, which are also traded on the Danish stock market.
Approximately $200 billion could be generated by obesity treatment drugs within the next decade, according to Barclays' Field.
While Novo's launch of Wegovy earlier in the pandemic was limited by supply constraints, it expects top-line growth of 24-30% after its relaunch.
On Apr. 20, Barclays analysts wrote in a note to clients that a new trial of Novo's diabetes drug CagriSema may prove that it causes 25% weight loss.
In previous trials for cardiovascular benefits from weight loss drugs, either no significant benefits were shown or safety concerns led to premature terminations of the trials. Obesity is associated with hundreds of health complications, including cardiovascular problems.
The results of Novo's "SELECT" trial are expected to provide a breakthrough, according to Barclays.
The trial is expected to conclude on Sept. 28 this year, and it involves overweight or obese patients with established cardiovascular disease.
In the case of those who have a higher risk of strokes or heart attacks, does weight loss associated with Wegovy prevent them from having such events?” Field asked.
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