Contrarian Opportunities in Biotech: Can Novo Nordisk Rebound After Alzheimer's Trial Setback?

The recent failure of Novo Nordisk's Alzheimer's trial for Rybelsus-a once-daily oral formulation of semaglutide-has sent shockwaves through the biotech sector. Shares plummeted nearly 10% in early 2025 after the company announced that the drug did not meet its primary endpoint of slowing cognitive decline in early-stage Alzheimer's patients. This setback, coupled with broader challenges such as slowing U.S. sales and leadership transitions, has raised questions about the company's near-term resilience. However, a deeper analysis reveals that Novo Nordisk's core strengths in diabetes and obesity therapeutics, combined with a robust pipeline and strategic acquisitions, position it as a compelling contrarian investment opportunity.

Near-Term Risks: A Setback, Not a Collapse

The Alzheimer's trial failure underscores the inherent risks of diversifying into unproven therapeutic areas. Novo Nordisk had pinned high hopes on semaglutide's potential to replicate its success in diabetes and obesity within neurodegenerative diseases. The EVOKE and EVOKE+ trials, which enrolled 3,808 patients, failed to demonstrate a statistically significant reduction in cognitive decline compared to a placebo. While the drug improved biomarkers like amyloid-beta, these changes did not translate into clinically meaningful outcomes for patients. UBS had previously estimated only a 10% chance of success for the trials, suggesting the market's reaction, though severe, was not entirely unexpected.

This setback compounds existing headwinds. Novo Nordisk's U.S. sales growth has slowed, and its market capitalization has contracted amid rising competition in the obesity space. The company's leadership transition-under new CEO Maziar Mike Doustdar-has also introduced operational uncertainty as it navigates restructuring and cost-cutting measures.

Long-Term Growth: A Fortress in Obesity and Diabetes

Despite these challenges, Novo Nordisk remains a dominant force in its core markets. Ozempic and Wegovy, its GLP-1 receptor agonists, have become blockbuster drugs, driving Denmark's GDP growth and cementing the company's role in the $100 billion obesity and diabetes therapeutics market. Analysts project this market to expand at a 18.3% CAGR through 2035, driven by rising obesity prevalence and regulatory approvals in untapped regions like China.

The company's pipeline further reinforces its long-term potential. Novo Nordisk is advancing UBT251, a GLP-1/GIP/glucagon triple agonist, and another preclinical triple agonist, which could offer superior weight loss efficacy compared to existing therapies. Additionally, its $5.2 billion acquisition of Akero Therapeutics and a $10 billion bid for Metsera signal aggressive moves to secure intellectual property and novel obesity treatments. These strategic bets align with a market where biologics are expected to gain traction over small molecules, despite the latter currently dominating 54% of the market share.

Contrarian Case: Undervaluation Amid Strategic Resilience

The Alzheimer's setback has created a short-term discount in Novo Nordisk's valuation, offering contrarian investors an opportunity to capitalize on its long-term strengths. For instance, the company's free cash flow of DKK 63.9 billion in the first nine months of 2025-alongside a DKK 53 billion shareholder return-demonstrates financial discipline and confidence in its business model. Analysts like Goldman Sachs and BofA have raised price targets for Eli Lilly, Novo's key competitor, but Novo's diversified portfolio and first-mover advantage in GLP-1 drugs provide a competitive moat.

Moreover, Novo Nordisk's experimental drug CagriSema, expected to enter phase-3 trials in 2025–2026, could deliver 200% higher weight loss than Wegovy within three years. Amycretin, another GLP-1 agonist, in phase-1 trials, has already shown 13.1% weight loss in 12 weeks-double Wegovy's efficacy. These innovations, combined with expansion into China and other high-growth markets, suggest the company is well-positioned to outperform peers in the next decade.

Balancing the Risks and Rewards

Critics may argue that Novo Nordisk's reliance on GLP-1 drugs exposes it to regulatory or competitive risks. Tirzepatide, Eli Lilly's GLP-1/GIP dual agonist has shown superior weight loss results in trials, and the obesity market is attracting new entrants. However, Novo's first-mover advantage, coupled with its aggressive R&D and acquisition strategy, mitigates these threats. The company's recent restructuring-cut underperforming pipeline candidates to focus on high-potential therapies-also reflects a disciplined approach to capital allocation.

Conclusion: A Contrarian Play on Resilience

While the Alzheimer's trial failure is a near-term blow, it should not overshadow Novo Nordisk's foundational strengths. The company's leadership in obesity and diabetes, a $100 billion market on the cusp of explosive growth, provides a durable revenue stream. Its pipeline of triple agonists, strategic acquisitions, and global expansion efforts further reinforce its long-term potential. For investors willing to look beyond the immediate setback, Novo Nordisk represents a compelling contrarian opportunity-a company whose core business is not only resilient but poised to redefine its industry.