A shake-up may be brewing in the market for GLP-1 diet drugs Friday, and it's making itself felt all across the field of companies selling (or hoping to sell) semaglutide and related drugs for treating diabetes and losing weight. As of 11 a.m. ET, shares of Novo Nordisk(NYSE: NVO) are down 4.2%, and Hims & Hers Health(NYSE: HIMS) stock is getting walloped for a 5.8% loss. In contrast, shares of Viking Therapeutics(NASDAQ: VKTX) are up a modest 3.3%.
And why? As CNBC reports today, the Biden administration is using its last few days in office to add 15 prescription drugs to the list of medications on which Medicare can negotiate prices. And here's the kicker: Three weight loss drugs from Novo Nordisk top this list.
Why Novo Nordisk investors are nervous today
Taking aim at the sky-high price of semaglutide, Medicare plans to negotiate prices for Novo Nordisk products Ozempic (an injection to control diabetes), Wegovy (an injection more designed for weight loss), and Rybelsus (a pill for diabetes). CNBC notes that prices for these drugs have been impacted by a combination of high demand and low supply, as well as varied coverage by private insurance. Once negotiated, the prices reimbursed by Medicare would go into effect in 2027.
Commenting on the move, Stephen Ubl's PhRMA pharmaceutical industry lobbying group called price negotiations "dangerous for millions of Americans who rely on innovative treatments." But what investors are more worried about is whether these negotiations will be dangerous for corporate profits.
Some 2.3 million Medicare enrollees use Ozempic, Wegovy, and Rybelsus combined, and Medicare spent $14.3 billion buying them between November 2023 and October 2024, according to the Centers for Medicare and Medicaid Services. That's a big pile of profits for Novo that are now being put at risk.
Novo may not like it, but as CNBC notes, the company will be required to choose between negotiating its prices lower, paying an excise tax of 95% of its sales on the drugs, or not having the drugs covered by Medicare and Medicaid at all.
Image source: Getty Images.
What this means for Hims & Hers and Viking Therapeutics
It's less obvious why this is making Him & Hers investors nervous today, or, for that matter, why Viking Therapeutics stock is going up. None of their drugs seem to be implicated in the Medicare price negotiations, after all. In addition to Ozempic, Wegovy, and Rybelsus, 14 other drugs are named as subject to negotiation, but there's nothing from Hims & Hers or Viking on the list.
Potentially, though, investors could worry that if Medicare is concerned with the high cost of semaglutide in particular, a subsequent round of price negotiations could target semaglutide compounders like Hims & Hers.
Conversely, Viking stock may be getting a boost because, although it works much like semaglutide and targets the same hormone semaglutide targets, the GLP-1 drug it is developing (but not yet selling), VK2735, is not itself technically semaglutide. Instead, it's called tirzepatide. That could be a distinction with a difference and potentially remove the Medicare crosshairs from Viking -- making its stock a better bet than Novo Nordisk going forward.
More on Novo Nordisk
In other news, Novo Nordisk announced the results from its phase 3b STEP UP semaglutide trial today. Specifically, the company said semaglutide 7.2 milligram (mg) injections over a 72-week period resulted in an average weight loss of 20.7%, better than the 17.5% weight loss achieved in a prior trial of semaglutide 2.4 mg injections.
Novo characterized these results as "superior." Still, the results appear to fall short of the company's ultimate goal of finding a drug combination that can average 25% weight loss. Taken in conjunction with the Medicare news, this is a second reason for investors to sour on Novo Nordisk stock's prospects today.
That said, it's worth pointing out that Novo Nordisk stock is now down an astonishing 44% from its all-time high hit back in July. At a price-to-earnings ratio now approaching 28, and with most analysts still forecasting long-term earnings growth of about 19%, we may be approaching the point where all the "bad" news will be "priced in," and there's nowhere left for Novo Nordisk stock to go but up.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.
