Medicare Just Cut the Price of Wegovy: Should You Sell Novo Nordisk Stock?

Core Insights - Novo Nordisk has faced significant challenges over the past two years, including disappointing earnings, clinical trial setbacks, and increased competition, leading to a loss of market share [1] - Recent regulatory changes in the U.S. pose additional obstacles for the company, particularly concerning the pricing of its key drug, Wegovy [1][3] Pricing Impact - The Inflation Reduction Act allows the Centers for Medicare and Medicaid Services (CMS) to negotiate drug prices, resulting in a 71% price cut for Wegovy, Ozempic, and Rybelsus, reducing the list price from $959 to $274 for a 30-day supply [3][4] - Semaglutide, Novo Nordisk's primary growth driver, has not met performance expectations, and the price reduction could further hinder top-line growth [5] Market Reaction - Following the announcement of the price cuts, Novo Nordisk's stock price increased by approximately 4%, indicating that investors may have anticipated even larger price reductions [6][7] - The company had previously indicated that the negotiated price cuts would have a minimal negative impact on revenue growth, estimated at low single digits [7][8] Future Growth Potential - The price cuts will take effect on January 1, 2027, by which time semaglutide is expected to have new indications approved, potentially adding over $1 billion to annual sales [9][10] - New approvals for semaglutide include its use in treating metabolic dysfunction-associated steatohepatitis (MASH) and an oral version for weight loss, which could enhance revenue opportunities [10][11] Product Pipeline and Valuation - Novo Nordisk is advancing its product pipeline, including CagriSema, which has shown superior weight loss efficacy compared to semaglutide, and amycretin, which is being developed for both weight management and type 2 diabetes [14][15] - Despite recent challenges, Novo Nordisk's stock is trading at 12.5 times forward earnings, below the healthcare industry average of 18.8, suggesting it may be undervalued at current levels [16]