As if it wasn't obvious by the endless fountain of ebullient headlines, Ozempic is the gift that keeps on giving for Novo Nordisk (NVO 0.35%) and its investors. Ozempic's active ingredient, semaglutide, received initial approval from the FDA for treating type 2 diabetes. It's now also approved for sale under different trade names like Wegovy to treat obesity, and there's plenty of ongoing research that indicates that it could be helpful for a smattering of other conditions as well.
As of Sept. 6, per a small study published in the New England Journal of Medicine (NEJM), Ozempic might be tremendously helpful for patients with type 1 diabetes, too, potentially freeing them from the need to take insulin with their meals to control their blood sugar. But what are the chances of the business actually commercializing another version of Ozempic for that purpose, and if they succeed, how much would it help the stock? Let's dive in and figure it out.
This latest finding is great news for patients and shareholders alike
To frame the conversation about Ozempic, it's helpful to appreciate just how big of a driver it is for Novo Nordisk's revenue so far. For 2023, GlobalData estimates that sales of Ozempic will be more than $12.5 billion in 2023, up 23% from a year prior. Other industry commentators see it generating as much as $20.6 billion this year. For reference, the company's annual revenue in 2022 was just over $25 billion, so to say that good news for Ozempic is good news for Novo Nordisk is an understatement.
So, let's unpack the latest good news. In the study of 10 patients with recently diagnosed type 1 diabetes that was published in NEJM, 100% of the participants were able to stop taking mealtime insulin after three months of treatment with daily low doses of semaglutide. After six months of treatment, 70% of the patients no longer needed to take regular maintenance doses of insulin at all, and that remained the case for the entirety of the study's 12-month tracking period. In short, the majority of the people in the study went from needing to inject insulin three or four times per day to needing zero.
The Centers for Disease Control (CDC) estimates that around 1.6 million people in the U.S. have type 1 diabetes.. Per a report by Facts and Factors, the market for type 1 diabetes therapies will grow at a compound annual growth rate (CAGR) of 5% to reach $2.8 billion annually by 2026. So, conquering that market wouldn't be a gargantuan boost to Novo's top line, though competing in it would deliver a steadily growing cash flow for years.
This is a long way from being a slam dunk
It's important to appreciate that Ozempic probably isn't about to be used for type 1 diabetes this year or next year. Getting regulators at the Food and Drug Administration (FDA) to approve Ozempic to treat type 1 diabetes is a long way off, and it might never happen. Prior scientific investigations of the efficacy of similar drugs were inconclusive as to their benefit, with the burden of side effects relative to effectiveness being a concern highlighted by researchers. Furthermore, regulators have not been impressed with prior attempts by other companies to get their medicines for type 2 diabetes approved for patients with type 1. In that vein, Novo Nordisk would likely need to show that they can make a formulation of semaglutide that's capable of delivering the claimed benefits for type 1 patients but without the full brunt of the sometimes-formidable gastrointestinal side effect profile associated with Ozempic.
Then there's another potential (solvable) obstacle: Novo didn't fund the latest study, and they declined in the past to work with the research group that produced it. Nor does it have any programs in clinical trials attempting to expand semaglutide's indications to include type 1 diabetes yet. But both of these could easily change.
Should you buy Novo Nordisk stock on the basis of this latest possibility for Ozempic? Probably not, even though the new development is bullish for the stock. It'll be years before the company makes a dollar from selling the drug for type 1 diabetes, and there is no guarantee that it ever will. At this point, the biggest boost to shareholders will come from the additional hype that the study generated for Ozempic -- and the hype train has been very good for investors so far, but it isn't a cause for investment in and of itself.
