Ozempic could have serious side effects. Is Novo Nordisk in trouble?

The diabetes drug Ozempic is a real cash cow for Novo Nordisk (NYSE: NVO)The company's sales, profits and share price have risen sharply in recent years – and no single drug has contributed more to this performance than Ozempic.

However, several potential headwinds have emerged that could hinder Ozempic’s progress. One of them is competition. Novo Nordisk’s long-time competitor in the diabetes market, Eli Lillyhas developed Mounjaro, a diabetes drug whose sales are growing incredibly quickly.

Elsewhere, the side effects of Novo Nordisk's crown jewel have come under increasing scrutiny, and a recent study suggests Ozempic may have a dangerous safety issue. Let's look at what this could mean for Novo Nordisk.

NVO revenue data (quarterly) from YCharts.

Could Ozempic trigger suicidal thoughts?

One side effect of Ozempic that has received a lot of attention is muscle wasting. However, an even more dangerous potential downside that some researchers have warned about is the possibility that Ozempic could increase suicidal thoughts.

A recent study aims to shed more light on this topic. The study looked at two drugs from the class of GLP-1 receptor agonists, which includes semaglutide, the active ingredient in Ozempic. The other GLP-1 drug studied was liraglutide, the generic name for Victoza and Saxenda, which treat diabetes and obesity, respectively.

Liraglutide was another Novo Nordisk discovery. Using a World Health Organization database that tracks suspected side effects of drugs and vaccines, researchers found that Ozempic was associated with a higher rate of reported suicidal thoughts compared to other drugs. Liraglutide did not appear to be associated with a higher rate of suicidal thoughts.

What should investors learn from these findings? Should you sell the healthcare sector stock?

No reason to panic

Regulatory authorities are already aware of the possible link between Ozempic – or at least its active ingredient semaglutide – and suicidal thoughts. Wegovy, an obesity drug with the same active ingredient, has a warning in the US about exactly this issue.

Sometimes researchers learn even more about a treatment and its side effects after years of use in real-world situations. If studies find a strong causal link between Ozempic or Wegovy and suicidal thoughts, that could prompt regulators to act. Perhaps they would add additional warnings or, in the worst case, take the drug off the market. In any case, that would mean lower (or no) sales for Novo Nordisk's biggest growth engine, dragging down revenue, profits and share price.

But there is no reason to believe that this study will lead to this morbid scenario. Other studies have reached different conclusions. A study published in Natural medicineone of the most prestigious scientific journals in the world, found that semaglutide is a lower risk of inducing suicidal thoughts than other non-GLP-1 anti-obesity drugs in real-world situations. This study, unlike the previous one, compared patients based on factors that may influence suicidal behavior, including gender, socioeconomic status, ethnicity, and mental health.

It would take a lot to reverse these findings, so for now, investors can continue to focus on Novo Nordisk's performance. And there aren't too many complaints on that front.

Financial results continue to be strong. In the first half of the year, the company's net sales increased 24% year-on-year to DKK 133.4 billion (US$19.8 billion). Ozempic's sales increased 36% year-on-year, while Wegovy's increased 74%. Notably, Novo Nordisk continues to lead the GLP-1 market – its share was 56% in May, compared to 54% a year ago.

Ozempic could achieve several approval extensions, including in the exciting area of ​​non-alcoholic steatohepatitis, where it is currently being investigated in a Phase 3 trial. Novo Nordisk has many other promising candidates. CagriSema, a next-generation GLP-1 drug, could be another multi-billion dollar drug. The pharmaceutical company is also seeking diversification and has launched several programs in a number of therapeutic areas.

Although there will continue to be various criticisms of Ozempic, the recent study does not pose too much of a problem for the drug and its manufacturer. Novo Nordisk should continue to deliver strong financial results and good stock market performance in the foreseeable future. I believe the stock is still a buy recommendation.

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Prosper Junior Bakiny does not own any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.