Novo Nordisk's Strategic Resilience in Obesity Therapeutics: A "Hold" Amid Near-Term Challenges

The obesity market is on fire, with global sales projected to hit $50 billion by 2030. At the epicenter of this revolution is Novo Nordisk, whose Wegovy (semaglutide) has become the gold standard in GLP-1 receptor agonist therapies. Yet, the road ahead is littered with hurdles: compounding pharmacies undercutting prices, Eli Lilly's aggressive market share gains, and supply chain bottlenecks. Despite these near-term headwinds, the STEP UP trial's 21% weight loss data and strategic IP enforcement position Novo Nordisk as a must-Hold for investors betting on the obesity market's exponential growth. Here's why.

The STEP UP Trial: A Long-Term Moat Against Competitors

The Phase 3 STEP UP trial, presented at the 2025 American Diabetes Association Scientific Sessions, demonstrated that semaglutide 7.2 mg achieved a 20.7% average weight loss over 72 weeks in non-diabetic patients, with 33.2% of participants losing ≥25% of their baseline weight—a milestone rivaling bariatric surgery outcomes. This dwarfs the 17.5% weight loss seen with the current 2.4 mg dose and far exceeds placebo results (2.4%).

The trial's results, now submitted to the European Medicines Agency (EMA), underscore Wegovy's dose-dependent efficacy, which is critical in addressing severe obesity cases. For Novo Nordisk, this isn't just about incremental sales—it's about owning the high-end of the market, where patients with BMI ≥40 require the most aggressive interventions. Competitors like Eli Lilly's Zepbound (tirzepatide) may match efficacy in some trials, but Novo's broader clinical data depth—including cardiovascular risk reduction approvals—creates a durable moat.

Supply Chain and Compounding Threats: Short-Term Pain, Long-Term Gain

Novo Nordisk's near-term struggles are clear. Compounding pharmacies, which legally mixed and sold cheaper generic semaglutide during the 2024–2025 shortage, cut into sales. Even after the FDA ended the shortage designation in early 2025, some companies like Mochi Health and Noom continue offering “personalized” formulations, eroding Wegovy's price premium.

The fallout? Wegovy sales fell 13% from Q4 2024 to Q1 2025. Yet, the company is fighting back:
- Supply Expansion: A $16.5B acquisition of Catalent in 2024 doubled production capacity, enabling 7.2 mg doses to be rolled out globally by 2026.
- Legal Offensives: Lawsuits targeting compounding pharmacies (e.g., Hims & Hers) have started yielding wins, with courts upholding FDA's authority to regulate compounded GLP-1s.
- Affordable Access: A $199 first-month offer and partnerships with CVS Caremark (Wegovy as the preferred formulary drug) are reclaiming market share.

Valuation: Growth vs. P/E Compression

Novo's stock trades at a forward P/E of 28x, below its five-year average of 32x. Analysts argue this discount is unwarranted given the $15–$18B obesity revenue forecast by 2030, driven by:
- The 7.2 mg EU approval (expected late 2025), adding $2–3B annually in sales.
- Pipeline assets like CagriSema (semaglutide + cagrilintide), which achieved 22.7% weight loss in Phase III trials, and oral semaglutide.

While pricing pressure from generics and rivals like Lilly's Zepbound (priced at $349–$599/month) is real, Novo's IP portfolio—with patents extending to 2035—ensures exclusivity in key markets.

Risks and Catalysts: Balancing the Scales

Risks:
- Pricing Wars: Insurers may push for lower rebates as generics enter the market.
- Regulatory Delays: EMA scrutiny of the 7.2 mg dose could delay approvals into 2026.
- Pipeline Competitors: Lilly's retatrutide (triple-agonist) and oral orforglipron threaten to steal market share.

Catalysts:
- STEP UP T2D Trial Data: Expected in Q4 2025, this will confirm 7.2 mg efficacy in diabetes patients, broadening its use.
- U.S. FDA Approval of Oral Wegovy: A 2026 submission could address “needle fear” and expand adoption.
- Shareholder Returns: A 15% dividend yield and buybacks are likely as cash reserves hit $20B.

Conclusion: Hold for the Obesity Gold Rush

Novo Nordisk isn't a growth-at-any-cost stock—it's a defensive play in a sector primed for secular expansion. While compounding pharmacies and pricing wars create volatility, the STEP UP trial's transformative data and IP-enforced moat justify a Hold rating. Investors should prioritize:
- Near-Term Focus: EMA approval of 7.2 mg (late 2025) and legal wins against compounding pharmacies.
- Long-Term Bet: Obesity's $50B market opportunity and Novo's leadership in GLP-1 innovation.

The path is rocky, but for investors with a 3–5 year horizon, Novo's resilience in this market makes it a cornerstone holding.

Recommendation: Hold Novo Nordisk (NOVO-B).
Price Target: $425–$450 (2026, based on $18B obesity revenue and 25x P/E).