Novo Nordisk A/S's next-generation weight-loss drug CagriSema isn't even on the market yet, but the company's chief executive officer is already batting back suggestions that the drug is obsolete following the release of disappointing trial results on Monday. Among investors, news of CagriSema's poor showing against Eli Lilly & Co.'s Zepbound sparked calls for a radical shift.
Novo shares plummeted 16.5% in the latest dramatic fall for a stock that is down about 61% in the past year. Some investors are now leaning on Novo CEO Mike Doustdar to diversify away from diabetes and obesity, the twin fields that have defined the Danish drugmaker for the past 30 years.
"They just need another leg," said Markus Manns, portfolio manager at Frankfurt-based Union Investment and a Novo investor. "Obesity and diabetes -- it's too risky to bet the entire company on these two franchises."
Expanding its repertoire would reduce Novo's risk as its blockbuster drugs Ozempic and Wegovy brace for generic competition in the US market early next decade, according to analysts and investors. Still, such a pivot would be a significant move for Novo, which established the modern obesity market and has been a leader in diabetes medication since its founding some 120 years ago.
"We want to retain and sustain and grow our leadership in diabetes and obesity and be the best in world within those two areas," Doustdar said earlier this month at a presentation of the company's full-year results.
Although Novo's Wegovy was first to market among the current generation of powerful weight-loss drugs, it has struggled to keep up with Zepbound. By the time that drug beat Wegovy in a head-to-head obesity study last year, Novo had already pinned its hopes on CagriSema as the next-generation medicine that would cement its dominance. But the study published today showed that CagriSema's 20.2% weight-loss for people treated with a standard dose failed to match the 23.6% weight loss triggered by Zepbound.
"The trial has backfired," said Michael Shah, a Bloomberg Intelligence analyst, adding that "the base case" was CagriSema showing weight loss in line with Zepbound. Not even achieving that, he said, "was unexpected and extends Lilly's advantage."
BMO Capital Markets analyst Evan David Seigerman said that the findings made clear that "a complete strategy overhaul is in order," adding, "it is striking to hear management concede that their competitor's product outperformed in a trial they sponsored and designed."
The results were the latest in a series of disappointments for CagriSema, which also underperformed in a diabetes trial. Analyst estimates for CagriSema sales have plummeted from 2024 heights, when it was thought revenue could reach as much as 116.8 billion Danish kroner ($18.4 billion) by 2030. The most recent estimates, according to analysts surveyed by Bloomberg earlier this month, put potential future revenue at closer to $6.9 billion.
"In an instant, we've gone from the company being described as having the best pipeline in the world to the whole story falling apart," said Lars Hytting, head of trading at ArthaScope, an investor in the Danish drugmaker. "It's not just that they're being outclassed on their existing products -- suddenly that fantastic pipeline turns out to be far less impressive than it was made out to be."
Novo has firepower for as much as $35 billion in dealmaking this year, and investors are urging the company to look past obesity, said Michael Leuchten, a Jefferies Plc analyst. That's especially true, he added, as analysts had estimated that CagriSema would account for as much as one-quarter of Novo's total estimated sales for 2030 and beyond.
Rare diseases and heart disease could be interesting fields for Novo to move into, Leuchten said. He pointed to AbbVie Inc.'s transformative $63 billion acquisition of Botox maker Allergan as a relevant precedent, as the US drugmaker faced competition for what was then the top-selling drug in the world, the arthritis medicine Humira.
"This was an asset that allowed the company to have ample time, opportunity and funds to circle back on the core expertise," Leuchten said of AbbVie's move. "That's where the debate is, but Novo isn't entertaining that."
Manns, the portfolio manager at Union Investment, said he'd like to see the company branch out into obesity-adjacent areas such as cardiology, or even into new fields such as cancer treatment.
Novo would be open to branching beyond diabetes and obesity into adjacent fields, Chief Scientific Officer Martin Holst Lange said in a call with journalists on Monday. He cited Novo’s work investigating inflammation in cardiovascular diseases and the company’s $5.2 billion deal last year to buy liver disease startup Akero Therapeutics.
In an interview with Bloomberg TV, Lange said that the jury is still out on what CagriSema can achieve, and that additional studies need to be done to assess its "full weight loss potential." He also defended the company's pipeline of new medicines, describing them as competitive both in the short and long term. Novo is developing a triple agonist, he said, which he described as the "next level" of obesity drug.
The clash between Novo management and analysts over CagriSema's potential was clear in a call on Monday. Doustdar bristled in response to an analyst's question about how he might move quickly on a new experimental medicine now that "CagriSema looks somewhat obsolete."
"To say it's obsolete is quite belittling to a fantastic drug in all honesty," the CEO said. He added that CagriSema will be on the market early next year and that it showed better weight loss results than competitors in the large-scale trials that are used as a basis for regulatory approvals.
The company is running a long-term study designed to encourage patients to take the highest possible dose. It also plans a high-dose version of CagriSema that will use even more of the active ingredient in Wegovy.
"The full story of CagriSema has not yet been written," Lange said.