Novo, Lilly Weight-Loss Drugs May Help Alzheimer’s Patients. What It Means for the Stocks.

Novo Nordisk is looking into whether the active ingredient in Ozempic can help treat Alzheimer’s disease. (Photo by JOEL SAGET/AFP via Getty Images)

Key Points

• Novo Nordisk’s stock has fallen over 60% since mid-2024, with its forward price to earnings ratio dropping from nearly 40 to 13.7.
• Data from two clinical trials on oral semaglutide’s effect on early Alzheimer’s disease are expected later this year.
• A positive outcome for Novo Nordisk’s trials could boost Eli Lilly’s stock by up to 10%, according to Leerink analysts.

Novo Nordisk stock has fallen more than 60% since its peak in mid-2024 and the weight-loss drug maker badly needs a boost. It could come soon if Alzheimer’s disease proves to be the next frontier for so-called GLP-1 drugs.

The benefits of Novo Nordisk and Eli Lilly’s GLP-1 drugs have swelled beyond diabetes and obesity to include cardiovascular and liver disease since Ozempic hit the market in 2017.

Data from two parallel clinical trials looking into whether oral semaglutide–the active ingredient in Ozempic and Wegovy–has a positive effect on early Alzheimer’s disease are expected later this year.

It’s by no means a guarantee and investors’ expectations are low. But if the data prove positive, the reward could be huge, especially given Novo’s depressed valuation. Novo currently trades at a forward price to earrings ratio of 13.7—down from nearly 40 in June of last year.

“Novo’s EVOKE/EVOKE+ trials represent a more compelling risk/reward opportunity for investors than many realize,” BMO analyst Evan Seigerman said. The sharp stock price decline over the past 18 months has made investors particularly reactive to positive upside opportunities, such as these “fundamentally low expectations of success,” said Seigerman.

Seigerman has a Market Perform rating on Novo American depository receipts with a price target of $50, noting that tactical traders could see an attractive short-term opportunity.

So far, little is understood about the potential impact of GLP-1s on the slowing or preventing of Alzheimer’s. The hypothesis is that the drugs target the neuroinflammatory processes that impact the disease.

GLP-1 agonists is a class of medication that targets a gut hormone that occurs naturally in the body, helping patients control blood-sugar levels and increase feelings of fullness.

Studies have shown a correlation between these treatments and reduced rates of Alzheimer’s, mostly in type 2 diabetes patients, but so far, there’s been little concrete evidence.

While a positive outcome could send Novo stock sharply higher, it may be a long shot.

“We don’t believe that GLP-1 agonists can be disease-modifying agents based on the data to-date,” said Leerink analysts led by Marc Goodman in a note earlier this month. The analyst argues the medical evidence to support the hypothesis to date is “not robust,” citing small studies with short durations, as well as the broader lack of randomized controlled trials as opposed to real-world data.

The number of people with Alzheimer’s, a disease characterized by a decline in brain function, is growing. More than 7 million Americans are living with the illness, a number that’s projected to rise to nearly 13 million by 2050, according to the Alzheimer’s Association.

Current approved treatments for Alzheimer’s include Leqembi, developed by Biogen and Eisai, and Lilly’s Kisunla. These treatments have been shown to slow down the progress of the disease in patients with early-stage Alzheimer’s, but side effects include possible bleeding and swelling of the brain.

While Eli Lilly hasn’t announced plans to test its own GLP-1 drug tirzepatide, sold under the brand names Mounjaro and Zepbound, a successful outcome for the Evoke trials could give the U.S.-pharma giant validation to initiate its own Alzheimer’s studies.

Positive trial data from Novo could boost Lilly stock by up to 10%, according to Leerink, which doesn’t rate Novo shares, but has a Market Perform recommendation on Lilly with a $715 price target.

Lilly said it believes these type of therapies can have an impact on brain health, in an emailed statement to Barron’s. The company has been monitoring available science and “will announce any plans for clinical trials in this space as appropriate in the future,” it said.

While tariffs and drug pricing policies remain overhangs for the pharmaceutical sector, there are more events that could boost drugmakers’ shares in the near future.

Investors are also closely watching the race to develop oral versions of the blockbuster jabs. Novo’s Wegovy pill is currently under review by the Food and Drug Administration, and a decision is expected later this year. If approved, it would become the first oral GLP-1 for weight-loss in the U.S.

Write to Elsa Ohlen at elsa.ohlen@barrons.com