Today's market movements saw a rise in Viking Therapeutics' stock, while Novo Nordisk and Hims & Hers Health experienced declines.
Turbulence is brewing in the market for GLP-1 diet drugs, and it's making waves across companies selling, or hoping to sell, semaglutide and related drugs for diabetes and weight loss. As of 11 a.m. ET, shares of pharmaceutical giant Novo Nordisk (NVO -5.23%) are tumbling 4.2%, while Hims & Hers Health (HIMS -2.86%) is taking a 5.8% hit. In contrast, shares of Viking Therapeutics (VKTX 3.15%) are barely budging, with a modest 3.3% increase.
Why the drama? As CNBC revealed today, the Biden administration is using its final days in office to add 15 prescription drugs, including three weight loss drugs from Novo Nordisk, to the list of medications on which Medicare can negotiate prices.
Novo Nordisk: Caught in the Crossfire
Taking aim at the sky-high price of semaglutide, Medicare plans to negotiate prices for Novo Nordisk products Ozempic (an injection to control diabetes), Wegovy (an injection more designed for weight loss), and Rybelsus (a pill for diabetes). The prices for these drugs have been influenced by a combination of high demand and low supply, as well as varied coverage by private insurance. Once negotiated, the prices reimbursed by Medicare will go into effect in 2027.
Pharmaceutical industry lobbying group PhRMA, represented by Stephen Ubl, has criticized price negotiations, calling them "dangerous for millions of Americans who rely on innovative treatments." However, investors are more concerned about the potential impact on corporate profits.
Numbers don't lie—2.3 million Medicare enrollees use Ozempic, Wegovy, and Rybelsus combined, with Medicare spending $14.3 billion on these medications between November 2023 and October 2024, according to the Centers for Medicare and Medicaid Services. That's a substantial chunk of profits for Novo Nordisk that could now be at risk.
Novo will have to choose between negotiating its prices lower, paying an excise tax of 95% on the drugs' sales, or having them entirely excluded from Medicare and Medicaid coverage.
Hims & Hers and Viking Therapeutics: Cautious Optimism
The Medicare negotiations may be causing hesitation among Hims & Hers Health investors, but it's not entirely clear why Viking Therapeutics stock is heading upwards. Neither of their drugs seem to be on Medicare's negotiation radar.
However, a potential worry for Hims & Hers could be that if Medicare is concerned about the high cost of semaglutide, a subsequent round of price negotiations could target semaglutide compounders, like Hims & Hers. On the other hand, Viking Therapeutics may be receiving a boost because the GLP-1 drug it is developing, VK2735, is not technically semaglutide. Instead, it's called tirzepatide. This distinction might shield Viking from Medicare's crosshairs, making its stock a safer bet than Novo Nordisk going forward.
Novo Nordisk: More Bumps on the Road
In other news, Novo Nordisk announced the results from its phase 3b STEP UP semaglutide trial today. The company noted that semaglutide 7.2 milligram (mg) injections over a 72-week period resulted in an average weight loss of 20.7%, outperforming a previous trial with semaglutide 2.4 mg injections and achieving a 17.5% weight loss.
While the results are promising, they still fall short of Novo Nordisk's ultimate goal of finding a drug combination that can average 25% weight loss. Pair this information with the Medicare news, and investors may be growing wary of Novo Nordisk stock's near-term prospects.
It's worth noting that Novo Nordisk stock has plummeted an astonishing 44% from its all-time high hit back in July. At a price-to-earnings ratio now approaching 28, and with most analysts still predicting long-term earnings growth of about 19%, we may be nearing a point where all the "bad" news is "priced in," and there's no place left for Novo Nordisk stock to go but up.
Enrichment Insights:
- Medicare's price negotiations on GLP-1 drugs could have significant financial and legal implications for Novo Nordisk.
- While Hims & Hers Health and Viking Therapeutics may not be currently affected by the Medicare negotiations, their stock performance may still be impacted by broader market trends and regulatory changes.
- Novo Nordisk's steep stock decline and its goal of creating a 25% weight loss drug combination may contribute to investor uncertainty.
Investors are closely watching Novo Nordisk's response to Medicare's plan to negotiate prices for its GLP-1 drugs, as this could impact the company's profits significantly. The negotiations could potentially affect the prices reimbursed by Medicare for Novo Nordisk's drugs Ozempic, Wegovy, and Rybelsus, which are used for diabetes and weight loss treatment.
In light of Medicare's move, some investors are expressing concern about the potential impact on Novo Nordisk's corporate profits, given that 2.3 million Medicare enrollees currently use these drugs and Medicare spent $14.3 billion on them between November 2023 and October 2024.
