Shares of Hims & Hers Health (HIMS) are getting crushed today after the Food & Drug Administration determined there is no longer a shortage of semaglutide, the active ingredient in Novo Nordisk’s (NVO) diabetes and weight-loss treatments Ozempic and Wegovy.
Semaglutide is a glucagon-like peptide-1 (GLP-1) that helps regulate blood sugar levels. Because of outsized demand for Ozempic and Wegovy, the ingredient has been in short supply, which allowed companies like Hims & Hers to offer compounded versions of the treatment.
Compounds are not tested for safety and the FDA warns against using them when the approved drugs are available. But the agency allows them to be sold when drugs are in short supply, as was the case with the weight-loss therapies.
Now that the FDA has determined there is enough semaglutide supply to meet current and future demand, compound usage is no longer authorized. HIMS stock plunged 23% on the development.
Does that mean it’s now time to buy Novo Nordisk stock?
Novo Nordisk was the first to market with its GLP-1 drug Ozempic for diabetes and its stock rocketed to new heights as off-label prescriptions for treating obesity made it a cultural phenomenon. The Dutch pharmaceutical eventually released Wegovy to specifically target this market.
While both drugs contain the same ingredient, the weekly dosage for Wegovy is higher than it is for Ozempic, making it more effective at causing weight-loss.
Yet it wasn’t long before U.S. pharmaceutical giant Eli Lilly (LLY) entered the market with its own GLP-1 treatment, Mounjaro. Instead of semaglutide, Lilly’s treatment includes the active ingredient tirzepatide.
The difference between the two is that tirzepatide is a dual glucose-dependent insulinotropic polypeptide (GIP) and GLP-1 receptor agonist. This means it activates both GIP and GLP-1 receptors so it offers a broader effect on blood sugar control and appetite suppression.
Eli Lilly subsequently introduced Zepbound to specifically target the weight-loss crowd.
Although Novo Nordisk is still the industry leader in the market with a 56% share. Lilly’s sales, however, have been growing faster and it has been rapidly stealing share from its rival.
Yet the Dutch pharma has also been constrained by supply limitations, which has allowed both Lilly and Hims & Hers to invade its territory. Now that the supply issue has been resolved, sales could resume their former growth trajectory.
Wegovy, for example, was approved a year ago to help prevent life-threatening cardiovascular events in adults with cardiovascular disease. The more indications a drug can get approval for the greater its sales will grow. The lifting of supply constraints can open the floodgates for growth.
Shares of NVO stock are down 27% over the past year as sales growth has disappointed investors. And the stock’s valuation, though elevated, remain cheaper than its rival.
Novo Nordisk trades at 18 times next year’s earnings estimates compared to Lilly’s 30 times estimates, and goes for 7 times sales. In comparison, Lilly trades at 18 times sales.
Wall Street does give the edge to Eli Lilly in earnings growth over the next five years, forecasting it will expand profits at a compound annual rate of 41% versus 19% for NVO.
On the whole, though, Novo Nordisk looks more attractive, has the leading market share and mindshare of the consumer, and now has ample supply to meet demand. That makes NVO stock a buy.
