(Bloomberg) -- Novo Nordisk A/S became the second-ever European company to pass $500 billion in market value, bolstered by an upbeat outlook for its blockbuster obesity drug.

Novo crossed the milestone on Wednesday, reaching a level only attained by Dior owner LVMH, as its shares extended recent gains. 

The Danish pharma company has roared past the luxury-goods giant, vaulting into the limelight as Wegovy for obesity and a sister medicine for diabetes, Ozempic, proved they could help people shed unwanted weight by curbing their appetites.  

Novo’s earnings sparked fresh optimism as the company said revenue could grow by as much as 26% this year and operating profit by up to 29% at constant exchange rates. The guidance looks conservative, according to Bloomberg Intelligence analyst Michael Shah. 

The drugmaker has struggled to keep up with demand for both Wegovy and Ozempic, which share the same active ingredient. On Wednesday, it said it has more than doubled the number of Wegovy starter doses it’s shipping to the US, enabling more people to get on the treatment. 

The company announced $8.7 billion in investments last year to beef up its manufacturing capacity.

Whether that translates into long-term sales will depend on two factors: competition from Eli Lilly & Co.’s Zepbound, introduced late last year, and how long people are willing to keep taking the medicine. Wegovy’s side effects include vomiting and diarrhea, and its list price is $1,349 a month. 

Novo shares have gained 60% in the past year, fueled by the obesity frenzy. They rose as much as 4.1% in Copenhagen trading Wednesday. The returns contrast with those of Swiss drugmaker Novartis AG, whose stock fell amid concern about its growth prospects. 

Some analysts are skeptical that Novo’s performance can last. The shares are expected to decline around 3% over the next 12 months, according to data compiled by Bloomberg.

“Novo remains our least preferred based on valuation and long-term trends,” Jefferies analyst Peter Welford wrote in a note. According to UBS’s Jo Walton, “great expectations” for the drugmaker are already reflected in its valuation.

With Lilly’s arrival into the market Novo pioneered, the Danish company warned of  “intensifying competition” and pressure on the price of its drugs for obesity and diabetes. 

US insurers are pushing back against rising costs for weight-loss treatment. North Carolina is cutting off coverage of drugs like Wegovy for state employees after its health plan spent $100 million on the medicines last year, potentially a harbinger of what’s to come as payers seek to negotiate over prices.

The drug’s net price after discounts will come down over time as more insurers cover the drug, Novo Chief Executive Officer Lars Fruergaard Jorgensen said in an interview. “What really matters is the volume opportunity in the US,” he said. “We see more opting in than opting out.” 

Key to winning broader coverage are the results of a large study, released last year, that showed Wegovy could help reduce the risk of strokes and heart attacks in overweight people with existing heart disease.

The drugmaker has sought regulatory approval for a label change that would allow Wegovy to be prescribed to patients like these. 

“We are building stronger and stronger data for what is actually the value of being on treatment,” Jorgensen said. “That resonates also with payers.” 

The medicine also succeeded in helping relieve obese patients’ pain from knee arthritis in a clinical trial, the company said Wednesday. 

Profit last quarter surged 62% to 22 billion kroner ($3.2 billion) at Novo, in line with analysts’ estimates. Sales of Wegovy, at 9.6 billion kroner, were below expectations amid supply constraints. 

 

 

 

--With assistance from Francine Lacqua.

(Updates with CEO comment from the 13th paragraph)

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