Novo Nordisk was valued as a diabetes-focused company which specialized in insulin-based treatments. A newer class of their drugs known as GLP-1 receptor agonists which aid weight loss, resulted in an inflation of their market valuation, currently close to $500bn. As of January 2022, this number was $245bn.
While the market size for Ozempic and Wegovy is quite large (100m obese people in the US alone), this sharp increase is characteristic of a bubble.
A few things to consider:
In the short term, pressure from regulators like the US government who are currently demanding a price reduction can come at a cost. If Medicare successfully negotiates lower prices for GLP-1 drugs, Novo Nordisk would face a considerable revenue reduction in one of its most lucrative markets. This will undermine the profitability that currently supports its high valuation.
The patent for Ozempic in the U.S. is set to expire in 2032, and the Chinese market patent will expire even sooner, in 2026. When patents expire, competitors are usually permitted to produce and sell similar drugs, often at a lower price. Additionally, competitors like Astrazenca are currently developing GLP-1 alternatives.
Finally, Pharmaceuticals are subject to boom and bust cycles such as with statin drugs in the 1990s. Similar to GLP-1 drugs today, statins initially created enormous market value for companies that first developed them, but as more competitors entered, the market became saturated, leading to a sharp decline in valuations.