Novo Nordisk shares have increased by 52% in 2023 on the back of high market expectations for the sale of the company’s obesity drug, Wegovy.

However, the pricing of the stock is quite stretched ,and development is very overdone.

”We think the enthusiasm around obesity is a bubble, but what will burst it,” says analyst David Evans at financial house Kepler in an analysis, according to Bloomberg News.

”We see no near-term price drivers,” he adds

Kepler points out that the price increases in Novo Nordisk since August, when a study showed that semaglutide, the active ingredient in both Wegovy and diabetes drug Ozempic, reduces the risk of heart attack and stroke, will require a doubling of the expected peak sales for the drug to USD 25bn per year.

Novo Nordisk’s stock is currently trading at 34 times expected earnings for the next 12 months, twice the average of the Stoxx 600Health Care index.

”Presumably due to the stock’s unique appeal, Novo’s valuation is very stretched compared to its historical average and its peers.”

”Sky-high valuations require much more growth.”

However, Goldman Sachs recently estimated that the obesity market will grow to USD 100bn by 2030. Novo Nordisk is currently the market leader with Wegovy, while Eli Lilly looks like the next big competitor with its GLP-1 drug, Mounjaro (tirzepatide), which is already approved for the treatment of type 2 diabetes. It is also expected to be approved for obesity in the near future.

However, the Kepler analysis also raises the price target for the Novo Nordisk share to DKK 715 from DKK 520. The recommendation is unchanged at ”hold,” as the price ended Wednesday at DKK 712.80.

(Translated by DeepL with additional editing Christian Radich Hoffman)