Novo Nordisk's European stock surged 9% as competitors canceled their generic Wegovy weight loss drug projects

Novo Nordisk's stock price continues to rebound as telemedicine company Hims & Hers Health Inc (hereinafter referred to as Hims & Hers) has withdrawn its plan to launch a low-cost generic weight loss drug due to regulatory and legal pressures. This news significantly alleviated market concerns about Novo Nordisk's core products facing competition from cheap generics, reinforcing its moat in the GLP-1 drug market.

Novo Nordisk's stock, listed in Frankfurt, rose over 8% on Monday, continuing the rebound trend from last Friday. Previously, Hims & Hers attempted to launch a compound weight loss drug based on semaglutide at a price of only $49 last Thursday. However, after facing legal threats and regulatory pressure from Novo Nordisk and the U.S. Food and Drug Administration (FDA), the company announced on Saturday that it would stop offering the treatment.

Hims & Hers stated that this decision was made after "constructive dialogue" with stakeholders. This incident marks a tightening stance from regulators on unauthorized compound GLP-1 drugs. Last Friday, FDA Director Marty Makary signaled a crackdown on such drugs, which led to a more than 5% rebound in Novo Nordisk's stock that day.

Despite the short-term surge in stock price, Novo Nordisk still faces fierce competition from Eli Lilly and ongoing challenges from other low-cost compound alternatives in the market. The company warned of "unprecedented pricing pressure" in its annual financial report released last week, causing its stock to plummet by 17% at one point. Since its market value peaked in June 2024, the company's market capitalization has shrunk by nearly two-thirds.

Tightening Regulations and Competitor Withdrawal

The $49 compound weight loss drug that Hims & Hers attempted to launch has semaglutide as its core ingredient, which is also the key component of Novo Nordisk's blockbuster drugs Wegovy and Ozempic. The product faced strong opposition from the Danish pharmaceutical company and regulatory agencies as soon as it was announced.

According to Reuters, after Novo Nordisk and the FDA issued legal and regulatory threats, Hims & Hers quickly changed its stance over the past weekend. The company stated on Saturday that it has decided to stop offering the treatment drug. This withdrawal directly contributed to Novo Nordisk's rise in the Frankfurt stock market on Monday.

Prior to this, FDA Director Marty Makary's statements about cracking down on unauthorized compound GLP-1 drugs had already injected a dose of confidence into the market. Such compound drugs have long been viewed as a major threat to Novo Nordisk's pricing power in the weight loss and diabetes markets. Influenced by this regulatory shift, Novo Nordisk's stock had already rebounded over 5% last Friday.

Pressure from Price Wars Remains

Although regulatory intervention has temporarily curbed the impact of specific low-cost generics, Novo Nordisk's market environment remains challenging. In addition to dealing with challengers like Hims & Hers attempting to enter the market with compound drugs, the company must also confront strong competition from major competitor Eli Lilly In the annual financial report released last week, Novo Nordisk issued a clear warning to investors, stating that the company is facing "unprecedented pricing pressure." This pessimistic outlook directly triggered panic among investors, causing its stock price to plummet by 17% after the report was released. The market is generally concerned that, with more competitors entering and alternative therapies emerging, the previously high-profit weight loss drug market will fall into a brutal price war.

Significant Shrinkage in Market Value

This series of market fluctuations highlights Novo Nordisk's currently fragile valuation foundation. Once a darling of the market, Novo Nordisk's market value peaked in June 2024. However, hampered by intensified competition and pricing pressure, the company's stock price has significantly declined since then, with its market value evaporating by nearly two-thirds from its peak.

Although the withdrawal of competitors from generic drug projects has provided a short-term boost to the stock price, whether it can reverse the long-term downward trend still depends on how the company maintains the competitiveness and pricing power of its products in an increasingly crowded field