The Obesity Bubble Has Finally Burst. Novo Nordisk Shares Drop 21%.

Novo Nordisk makes the best-selling weight-loss drugs Ozempic and Wegovy. (SERGEI GAPON/AFP via Getty Images)

The obesity drug bubble has been leaking air for about a year. On Tuesday morning, it appears to have definitively burst, at least for Novo Nordisk .

Novo’s American depositary receipts were down 21.8% by midday Tuesday to $53.98. They were priced at over $125 a year ago.

Shares of Eli Lilly , which makes a competing obesity medicine, were also down on Tuesday, falling 4.8%.

The selloff arrives as investors continue to come to terms with the idea that Wall Street vastly underestimated the complexity of the obesity drug rollout in 2023 and early 2024, and that sales expectations for the drugmakers have been overly optimistic.

On Tuesday, Novo company slashed sales and profit guidance for 2025, citing—among other factors—persistent competition for its mega-blockbuster weight loss drug Wegovy from cheap compounded knockoffs, even after regulators have moved to shut down that market.

The company also said it had chosen an insider, Maziar Mike Doustdar, to succeed CEO Lars Fruergaard Jørgensen, who Novo announced in May it intended to replace. Doustdar, who formerly led international operations for Novo, is a surprise pick: Given the company’s recent troubles, many investors had expected it would bring in an outsider as Novo’s next leader.

Novo shares had been down 45% over the past 12 months as of the close of trading on Monday. That slide came amid a broad reconsideration of the obesity drug market, which seized the imagination of investors in late 2022, and for a time made Novo the most valuable company in Europe.

The startling efficacy of Novo’s Wegovy and Lilly’s rival drug Zepbound, and the large numbers of people worldwide who are overweight or obese, convinced investors and analysts that sales of the two drugs would be gigantic.

Since last summer, though, as the complexities of the market have become clear, those estimates have come down.

Novo, which officially reports second quarter results next week, said that its earnings for the second quarter were 5.96 Danish krone per share, slightly better than the 5.90 DKK consensus estimate.

The guidance cuts, however, were dramatic.

Novo now sees sales growth for 2025 of between 8% and 14%, down from expectations set in May of between 13% and 21%. Initially, the company had said it expected sales growth of between 16% and 24% in 2025.

Novo expects operating profit growth of between 10% and 16%, down from its prior estimate of between 16% and 24%.

Analysts had been expecting sales to grow 13% in 2025 to 328 billion DKK, according to FactSet.

“A reduction in guidance is a matter we approach with the utmost seriousness,” the chair of the Novo board, Helge Lund, said on a media call Tuesday. “Nonetheless, Novo Nordisk has launched a variety of strategic investments and commercial initiatives, and we are already observing positive early indicators that support our revised outlook.”

In its statement on Tuesday, the company largely laid blame for the cut on compounded GLP-1 drugs, the knockoff versions of Wegovy that telehealth pharmacies sold en masse in 2024 and early 2025. After the Food and Drug Administration determined that the shortage of Wegovy had ended, the agency told compounders to stop making bulk lots of compounded Wegovy as of late May.

Novo says mass compounding continues. On Tuesday’s press call, Jørgensen, the outgoing CEO, said that the prior guidance had assumed mass compounding would stop, but it hasn’t.

“We see actually that it’s actually the same volume as we saw earlier in the year, around a million patients using compounded products,” he said.

That’s resulted in fewer patients than expected turning to Novo’s own cash pay option, the company said, which offers Wegovy for a lower price for cash paying customers.

These problems now fall on Doustdar’s shoulders. He is the sixth Novo CEO, and the first person not from Denmark to lead the company, in its 102-year history.

“I come to this role with a sense of urgency,” Doustdar said on the press call. He said he would focus on improving commercial execution and on cutting costs.

Novo has been struggling to convince investors it can stay on pace with U.S. rival Lilly, which also makes the diabetes drug Mounjaro. The market is also about to get increasingly crowded with many more weight-loss drugs being developed by other companies.

“I think we are very well positioned with our manufacturing capabilities, with our science, with our commercial activities and with brand recognition to really capture more and more of this market,” Doudstar said.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com and Elsa Ohlen at elsa.ohlen@barrons.com