Why Novo Nordisk Stock Is Sinking Today: Weighing Long-Term Risks in the Obesity Drug Race

The recent 5.6% plunge in Novo Nordisk's stock (NOVO.NYSE) on June 18, 2025—amid a rising market—reflects investor anxiety over the company's ability to retain dominance in the booming weight-loss drug sector. While the decline is partly tied to short-term headwinds like the termination of its Hims & Hers partnership and underwhelming CagriSema trial results, the bigger question is whether these setbacks signal a structural erosion of Novo's competitive edge or a temporary stumble in a high-stakes race. Let's dissect the risks and opportunities.

The Partnership Termination: A Legal and Reputational Blow

Novo's termination of its collaboration with Hims & Hers in mid-2024—cited for violating laws by using unapproved Chinese suppliers to produce knock-off versions of Wegovy—has lingering consequences. While the partnership was dissolved over a year ago, the incident underscores two critical risks:

1. Supply Chain Integrity: Novo's accusation that Hims & Hers used illicit foreign ingredients highlights vulnerabilities in third-party distribution networks. This raises concerns about whether Novo's partnerships with other telehealth platforms (e.g., LifeMD) might face similar scrutiny, potentially disrupting its market access strategy.
2. Regulatory Compliance: The FDA's stance against compounding pharmacies post-Wegovy shortage has forced Novo to enforce stricter controls. However, competitors like Eli Lilly (LLY.NYSE) are now leveraging direct-to-consumer channels more effectively, sidelining telehealth partnerships that Novo once relied on.

The chart reveals Novo's 55% decline from its 2024 peak, contrasting with Lilly's relative stability, reflecting investor skepticism about Novo's ability to defend its leadership.

CagriSema's Clinical Setback: A Missed Target, a Missed Opportunity

The June 2025 announcement of CagriSema's Phase 3 results—showing a 22.7% average weight loss in non-diabetic patients (vs. a 25% target)—exposed critical gaps in the drug's profile:

• Efficacy Gap: While the results are impressive, falling short of expectations fueled doubts about whether CagriSema can outperform rivals like Eli Lilly's Zepbound, which achieved similar or better results in trials.
• Safety Concerns: Gastrointestinal side effects led 6% of trial participants to discontinue use, a red flag compared to Eli Lilly's oral candidate orforglipron, which reported no serious safety issues in mid-stage trials.

These flaws have pushed investors to question whether CagriSema's delayed 2027 launch will arrive too late to counter competitors already in the market (e.g., Zepbound's 2025 launch). Analysts now project CagriSema's peak sales at $2.5–3 billion, far below Novo's internal $6 billion target.

The Competitive Landscape: Novo's Shift from Leader to Follower

The obesity drug market is now a battlefield, with Eli Lilly aggressively outmaneuvering Novo:

Metric	Novo Nordisk	Eli Lilly
Key Drug Pipeline	CagriSema (2027), Wegovy	Zepbound (2025), orforglipron (2026)
Market Share (2025)	~45% (Wegovy's dominance)	Rising to ~30% as Zepbound scales
Regulatory Momentum	Struggling to defend Wegovy's crown	Gaining FDA favor with novel therapies

Novo's reliance on Wegovy—a drug nearing patent cliffs—contrasts with Lilly's diversified pipeline, which includes oral therapies (easier to use than injectables) and dual-agonist drugs targeting both GLP-1 and GIP pathways. This innovation gap is widening.

Valuation and Fundamentals: A Contrarian Opportunity?

Despite the recent decline, Novo's fundamentals remain robust:

• Financial Health: A PE ratio of 20.51, 44.6% operating margin, and $309 billion market cap suggest the company can weather setbacks.
• Valuation Signals: Analysts rate Novo as “Significantly Undervalued” with a GF Value of $139.96 (vs. June 2025's $108 price), implying a potential 30% rebound.
• Strategic Moves: Partnerships like its AI collaboration with NVIDIA and improvements in its weight-management pipeline offer long-term growth paths.

However, risks remain:
- Market Share Erosion: Novo's share of the obesity drug market is projected to drop to 35% by 2030 as rivals expand.
- Patent Exposure: Wegovy's U.S. exclusivity ends in 2028, leaving Novo vulnerable to generics.

Investment Thesis: Buy the Dip, or Wait for Clarity?

Bull Case:
- Novo's dominance in Wegovy still commands premium pricing and brand loyalty.
- CagriSema's efficacy (even at 22.7%) is still industry-leading, and Novo could optimize dosing to reduce side effects.
- The undervalued stock offers a margin of safety for long-term investors.

Bear Case:
- The “fast follower” label is no longer tenable; Lilly's innovation could permanently shift market dynamics.
- Regulatory and reputational risks from past missteps (e.g., Hims) may deter investors.

The chart shows Novo's stock underperforming Lilly by ~60% since 2021, reflecting its fading competitive moat.

Final Call: Caution, but Not Entirely Bearish

While Novo's near-term challenges are undeniable, its core strengths—Wegovy's current dominance, fortress-like balance sheet, and pipeline resilience—suggest the stock could rebound if CagriSema gains FDA approval and the company adapts to the shifting market. Investors should consider a cautious approach:

• Buy on dips below $100, with a stop-loss below $95, targeting a 12–18-month horizon.
• Monitor Lilly's Zepbound sales growth and CagriSema's protocol adjustments for clues on whether Novo can reclaim momentum.

In the obesity drug race, Novo is no longer in first place—but it's not out of the game yet. The question is whether its legacy advantages can offset the innovation surge from rivals. For now, the jury remains out.

Invest with discipline, not emotion.