major pharmaceutical company novo nordisk (NVO 2.26%) Last year was a big deal. The company's stock trumped an otherwise high-flying market thanks to its efforts in the anti-obesity drug space. However, Nordisk's strong performance does not begin with his 2023. This biotechnology has been producing huge profits for some time.
Let's take a look at how much money someone who invested $5,000 in this stock about 5 years ago (2019) has now, and what that means for future investors.
NVO Total Return Level data by YCharts.
Not everything was smooth sailing
Novo Nordisk has faced several issues since 2019. First and foremost, like many other businesses, the pandemic disrupted our business. Novo Nordisk had problems manufacturing and distributing medicines after the initial outbreak.
Additionally, both the public and government officials accused Novo Nordisk and other insulin market leaders of charging exorbitant prices for their products. In response to the backlash, Novo Nordisk followed the lead of longtime rivals and announced last year that it would lower the price of insulin. Eli Lilly.
Despite these issues, Novo Nordisk was impressive. Ozempic, a now well-known diabetes drug, was first approved in the U.S. in 2017 and contributed to the company's rapid sales growth. Other medicines, such as Libersus, another diabetes drug, have also contributed significantly.
Novo Nordisk's financial results have remained strong throughout most of the period, resulting in the company's stock delivering a compound annual growth rate (CAGR) of 36.8%. So if he invested $5,000 in Novo Nordisk five years ago, he would now have $18,973. That means Novo Nordisk has more than tripled its investors' money over the past five years.
How does this compare to the broader market? S&P500 The CAGR is 14.9%, which is enough to turn $5,000 into $10,026. That's not bad, but it's not as impressive as what Novo Nordisk has accomplished.
Can biotech do it again?
Novo Nordisk's prospects for the next five years remain positive. Ozempic remains popular, and Wegovy, first approved in the U.S. for weight loss in 2021, continues to gain traction. Wegovy is technically the same clinical compound as Ozempic, but the dosage is different. The anti-obesity drug market is expected to soar over the next five years and beyond, and Novo Nordisk is expected to benefit. Ozempic should also gain important label extensions, including for the treatment of kidney disease in diabetics.
However, these two are not the only growth drivers for Novo Nordisk. The biotechnology is nearing a key approval in the insulin market: Insulin Icodec, a once-weekly insulin product. Due in part to the aforementioned issues, insulin sales have been a major driver of sales growth recently, but icodec could help reverse this trend.
Novo Nordisk is working on a number of other candidates. One of the company's goals is to expand its lineup far beyond its core areas of diabetes and obesity care, and given its pipeline, it should be able to accomplish that over the next five years.
So, can this biotech achieve a CAGR of around 36.8% over the next five years? That's an incredibly high bar, but I believe so. The company's most important products should continue to drive strong sales growth while gaining new product approvals and recording steady clinical progress. However, even if Novo Nordisk fails to achieve this noble feat, it should still generate market-beating revenues.
If a company recorded a CAGR of half of its performance over the past five years; still It would have outperformed the S&P 500 by a significant margin. Moral of the story: Novo Nordisk is a great biotech stock to buy and hold for a while.
