Novo’s Obesity Shot Shortfall Shows Danger of Promising Too Much

(Bloomberg) — Novo Nordisk A/S’s failure to meet its own bar for success on a next-generation obesity shot shows the danger of promising too much in the cut-throat market for weight-loss drugs.

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The Danish drugmaker repeatedly told investors that CagriSema, expected to be launched in 2026, would help people lose 25% or more of their body weight. Instead, patients on the experimental drug lost 20.4% in a study, putting the treatment on par with what arch rival Eli Lilly & Co. already has on the market in Zepbound.

Reaction from the markets was swift and brutal. Novo shares fell as much as 27% in Copenhagen on Friday, at one point wiping out $120 billion from its market value.

While Novo is trying to claw back some lost ground by promising to start another trial in the first half of next year to better calibrate doses, the damage seems to have been done. The company has been counting on CagriSema to help it ward off a growing roster of competitors, led by Lilly, in a weight-loss market that’s predicted to grow to $130 billion by 2030. The disappointing study results now put pressure on the company to find ways to beef up its pipeline of experimental medicines.

“This is a huge blow to Novo’s competitive chances in the mid term,” said Oliver Reinberg, an analyst at Kepler.

As investors digest the results of the study, one of the most anticipated in the field, what’s emerging is that Novo may not have followed the typical procedure of weight-loss drug trials. Patients’ doses are usually boosted at regular intervals to gradually get them to adjust to the new medicine.

But Novo gave patients in its study the ability to stay at a lower dose of medicine if they didn’t want to take more. Only 57% of the patients on CagriSema — which adds a second compound to Novo’s wildly successful obesity shot Wegovy — wound up taking the highest dose, a figure that’s way too low, according to John Murphy, a London-based analyst with Bloomberg Intelligence.

Novo’s pledge to start another trial isn’t reassuring investors, said Jared Holz of Mizuho Securities. “We are not so sure the Street will care about this too much,” he said, adding that most investors will still likely walk away believing the combined drugs should have driven higher weight-loss over more than a year. The 20.4% loss had come over a 68-week period.

It will be difficult to say for sure why the patients didn’t choose to dose up until Novo releases detailed results on the trial next year at a medical conference. One reason could be side effects, which can be unpleasant gastrointestinal issues including diarrhoea and vomiting. Another could have been that patients were simply happy with the level of weight loss they were seeing. While companies in the industry are likely to strive for ever-increasing weight loss from their medicines to stay competitive and keep their pricing high, many customers might be satisfied with less.

In some ways, Novo — whose first-mover advantage in the industry made it Europe’s most-valuable company in terms of market capitalization — may be a victim of its success, some analysts suggested. The company was “overconfident” when it kept the framework of the trial flexible, said Lars Hytting, head of trading at Artha Kapitalforvaltning, noting that it wasn’t well thought out.

“It seems like they had expected that no matter how they designed the trial, it would show amazing results,” he said. “And then it would look even stronger if you could show a higher weight loss on a flexible trial.”

Novo’s existing blockbuster Wegovy mimics the gut hormone GLP-1, and CagriSema adds a second mode of action. The extra compound, called cagrilintide, works in a similar way as another gut hormone called amylin. Both the old and the new medicines suppress the appetite, though taking amylin has been described as a gentler experience than a GLP-1 drug, helping people stay satisfied for longer instead of wiping away their drive to eat. Lilly is also working on a next-generation medicine, called retatrutide, which helped people lose up to about 24% of their weight in a mid-sized study last year.

Even as Novo pushes ahead with its plan for a new trial of CagriSema it may have to think about looking for deals to bulk up its pipeline, perhaps with a move similar to Merck & Co., which this week bought the rights for a pre-clinical pill that works like Wegovy, said Mizuho’s Holz.

The CagriSema results are critical not just for Novo but for a group of companies — including Lilly and Zealand Pharma A/S — working on other medicines based on amylin.

Zealand’s shares also sank on Friday after Novo’s trial results. But the news wasn’t all bad for amylin companies, argued Adam Steensberg, chief executive officer of Zealand. That’s because of an arm of the study that gave just cagrilintide to patients showed 11.5% weight loss. Unlike in the CagriSema arm, some four-fifths of cagrilintide patients chose to dose all the way up.

Market research shows that most people are actually happy with weight loss in the 10% to 20% range, Steensberg said. He suggested that most patients might not actually want the level of weight loss being promised by some of the more powerful new drugs.

Zealand is studying a stand-alone amylin drug that the company says could offer reasonable weight loss with fewer of the unpleasant side effects associated with current medicines.

“I think in this competition between large pharma companies to achieve more weight loss we have forgotten the patients,” Steensberg said.

Meanwhile, Novo still has a shot at proving CagriSema is better than Lilly’s Zepbound. The company is running a head-to-head trial of the two shots, due to read out next August.

Still, Bloomberg Intelligence’s Murphy said that leaves investors asking: “Is Novo just continually going to be playing catch-up?”

–With assistance from Sara Sjolin, Joe Easton and Anne Cronin.