Recent sales of a little-known stock, Madrigal Pharmaceuticals (NASDAQ: MDGL), could bode well for Novo Nordisk A/S (NYSE: NVO). The pharma industry giant has seen explosive sales growth for its GLP-1 agonist drug, semaglutide. Marketed through the names Ozempic and Wegovy, sales of the drugs grew 32% and 76% through the first nine months of 2024, compared to the same 2023 period.

However, shares of Novo Nordisk have fallen considerably since the all-time highs they reached in the middle of 2024. Now, the stock has provided a total return of just 5% on the year, as of the Dec. 17 close. Much of this has been due to further clinical results that showed stronger weight loss efficacy for Zepbound. It is the GLP-1 agonist drug sold by Novo’s top competitor, Eli Lilly (NYSE: LLY). I’ll break down the fall from grace that Novo shares have experienced in the second half of 2024. I’ll then explain other clinical and financial results that could help reignite Novo shares.

Semaglutide Facing Negative News on Multiple Fronts

In mid-2024, a study tested Novo's semaglutide against Eli Lilly's Zepbound, also known as tirzepatide. The goal was to see which drug resulted in a larger amount of weight loss. Patients who took tirzepatide lost more weight than those on semaglutide at every measured interval. After 12 months, patients taking Lilly’s drug saw nearly 7% more weight loss than those taking Novo’s. In December, researchers released further data confirming these findings. This news has been a dark cloud hanging over Novo shares. They have dropped 24% since researchers released the study in July, as of the Dec. 17 close.

Clearly, markets are concerned about Novo’s ability to keep up the sales growth of its GLP-1 when an apparently superior treatment exists. Also, there is much chatter about the drug being subject to Medicare price negotiations. This would lower the price of the drug, reducing the amount of revenue Novo could receive from each Medicare patient. Meanwhile, market commentators don’t seem to believe Zepbound will have to undergo the same scrutiny.

MASH: A Possible Next Frontier for Semaglutide

Although Novo and Lilly’s drug is currently only approved to treat obesity and diabetes, the companies are continually researching them to treat other conditions. This includes metabolic dysfunction-associated steatohepatitis (MASH). This is a disease where fat builds up in the liver, leading to scarring and cirrhosis if left untreated. It is different from alcoholic steatohepatitis (ASH). The liver damage is not due to excessive alcohol use. For this reason, it is also referred to as non-alcoholic steatohepatitis (NASH). There were no Food and Drug Administration (FDA) treatments approved for MASH until recently.

Madrigal Pharmaceuticals received FDA approval for its MASH treatment in March. Since then, sales have been exploding. Revenues from the MASH drug Rezdiffra grew by over 400% from Q2 of this year to Q3. The $62 million in sales crushed consensus projections on Wall Street by 83%. Now, some analysts are projecting sales of the drug to top $500 million in 2025. By 2030, analysts at Evaluate expect Rezdiffra sales to top $3 billion. They see the entire MASH treatment market worth nearly $10 billion a year.

Phase 3 trial results suggest that Novo could take a large part of this market. The MASH trials' main goals are to improve liver fibrosis and resolve steatohepatitis without worsening either condition in people with MASH. Researchers compare this to a placebo. In patients who took semaglutide, there was a 17% greater rate of achieving both endpoints compared to the placebo group. The difference between patients who took Rezdiffra was just 12%. This points to a possible efficacy advantage compared to Rezdiffra.

MASH Approval Could Help Change the Narrative Around Semaglutide

With these results, Novo plans to file for regulatory approval of semaglutide to treat MASH in the first half of 2025. It will do so both in Europe and the United States. This could make the company’s drug the second to enter the MASH market.

Given Rezdiffra's explosive sales growth, Novo may achieve the same outcome if authorities approve its drug. Success in this multi-billion-dollar market could be a shot in the arm for Novo's value. It would help the sentiment around semaglutide, given recent negativity. Still, Novo will need to keep innovating in the weight loss market to maintain its dominant position over Eli Lilly and other competitors. Novo still maintains a 65% market share in global GLP-1 volume.