Novo Nordisk’s drug tumble suddenly made it slimmer

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Admittedly, the obesity market will be huge, with sales expected to rise to $150 billion by 2030. But it will also be crowded. The premium valuations enjoyed by the current duopoly – Denmark’s Novo Nordisk and US Eli Lilly at 32.5 and 57.6 times 2024 earnings respectively – are built on the fact that their heft will allow them to stay on top of the competition. Novo Nordisk’s stumble on Friday puts that in doubt.

The Danish pharmaceutical group says participants in a late-stage trial of its next-generation weight loss compound CagriSema, a combination of semaglutide and cagrilintide, They lost “only” 22.7 percent of their body weight on average. This is an impressive result by all standards, with one exception. Novo Nordisk was targeting a 25 percent weight loss. Its shares fell by a fifth in the early afternoon, wiping €85 billion off its market value.

On the face of it, this seems like a big response to a small mistake. It equates to more than the total net present value of CagriSema’s future sales, which Berenberg analysts estimate at 130 Danish kroner per share, or about 75 billion euros.

The exact reason why the drug performed poorly as expected is not entirely clear. It may be dosing related, since only 57% of patients in the trial received the highest amount of the drug. Meanwhile, even with a 22.7 percent weight loss, CagriSema is slightly ahead of Eli Lilly’s Zepbound, which in a recent trial reduced body weight by 22.5 percent.

However, there is some logic in the market’s reaction to this Novo Nordiskmiss. If CagriSema could reduce patients’ body weight by a quarter, it would have given it a clear lead in the next generation of drugs. As things stand, it has failed to close the door on upcoming compounds, including Eli Lilly’s Retatrutide, whose trial results are expected in 2026. Shares of the US pharmaceutical group rose in pre-market trading.

More broadly, there are 120 weight-loss agents being trialed by 60 companies according to IQVIA Analytics, making the pipeline crowded. This will never be a winner-take-all market since different patients will have different requirements and different reactions to the available medications. But much of Novo Nordisk’s valuation rests on hopes that its size, experience and cash flows will give it a head start. This is not a race in which incumbents can lose ground.

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