Do You Buy or Sell?

Christian DeHaemer

Posted March 12, 2024

Novo Nordisk Launches on Weight Loss Pill. 

Novo Nordisk’s stock is hitting new record highs after it announced its latest weight loss drug.    The stock has been on fire.  Novo is now Europe’s biggest stock by market capitalization having gained more than 80% over the last 52 weeks.

You see, Novo Nordisk has developed a new class of GLP-1 drugs.  GLP stands for glucagon-like peptide.  The drug works by mimicking a gut hormone that controls blood-sugar levels which in turn reduces appetite.

Unless you’ve been living under a rock you know these drugs which go by the name Ozempic for diabetes and Wegovy for shedding weight are hugely popular.  Around here trophy wives are going to pilates, getting a Botox shot to the forehead for their wrinkles, and then picking up a Wegovy shot on the way out.

Demand for GLP-1’s far exceeds supply.

The question has always been when are they going to put it in an oral form.  Well, the phase 1 data is in and the pill has been deemed safe and effective with 13.1% weight loss after 12 weeks.  

Phase 2 trials will begin in the second half of the year.  There is no doubt that Novo has a blockbuster drug on its hands for which patents will last until 2031/32.

The question is should you buy the stock?  

Here is the NVO three-year chart.  It shows a “coiled spring” formation followed by a breakout and an uptrend.

The green line is the trend line.  I would like to see the share price drop back and touch it before I buy.

As far as fundamentals go, NVO has a trailing p/e of 47 and a price-to-sales of 17.  They also have a lot of debt.  

In other words, NVO is as expensive as you would expect.  The technicals say it is overbought.  The catalyst of the phase 1 trial is already priced in.  

The next catalyst for share price appreciation would be the end of phase 2 trials — and you still have phase three and a couple of years before this pill goes to market.  A lot of things could go wrong before that happens.

Compare to Viagra

Let’s take a look at another blockbuster drug company Pfizer (PFE) which created Viagra to help with erectile dysfunction.  

Viagra was patented in 1996, approved for use in ED by the FDA on March 27, 1998, and went on sale later that year.  Annual sales of Viagra peaked in 2008 at $1.934 billion.  

Here is the Pfizer chart from 1995 to 2012 which covers the glory years of the blockbuster drug.

You could have made about a 370% return on your investment after the patent was approved if you sold at the very top.  You should also remember that this was during the boom-boom dot-com stock market of the late 1990s.

So should you buy Novo Nordisk?  

I’d take a speculative position in NVO when it pulls back and hits its trend line around $115. With the idea of selling into the phase 2 trial news when it comes out later this year.

All the best,

Christian DeHaemer
Pro Trader Today