Weight loss stocks could become Alzheimer’s drug stocks. Here’s why he’s bullish on Novo Nordisk

As if billions of dollars in weight loss drug sales weren’t enough, Novo Nordisk (NGO 4.13%) and his colleagues developing these drugs have a new opportunity that could fill their wallets even more. There is now reason to believe that the emerging market for Alzheimer’s therapies could be accessible with many of the same products.

Let’s explore how this new possibility is revealed and what it could mean for share prices.

This crossover opportunity could be great

One of Novo Nordisk’s molecules, liraglutide, can significantly slow the rate of cognitive decline in people with Alzheimer’s disease, according to the results of a phase 2 clinical trial published on July 30. Although the treatment was not curative, it appeared to reduce brain volume loss over a year by up to 50%. Currently, liraglutide is sold under the brand names Saxenda, which is indicated for weight loss, and Victoza, which is intended for the treatment of type 2 diabetes.

For the uninitiated, liraglutide is an older member of the class of drugs known as GLP-1 receptor agonists. A newer GLP-1 receptor agonist, semaglutide, is the active ingredient in the company’s successful diabetes drug Ozempic, as well as its weight loss drug, Wegovy. And Novo Nordisk is currently running a phase 3 clinical trial investigating whether semaglutide could be useful in treating Alzheimer’s disease.

You probably already see where this is going. With some solid clinical evidence in hand, there is an avenue for potential expansion of semaglutide in the treatment of Alzheimer’s disease. This would help Novo Nordisk and possibly some of its peers Eli Lillypivot seamlessly from leading weight loss actions to leading Alzheimer’s actions. And that, at least, would support higher share prices.

The question of exactly how GLP-1-targeted drugs might be useful for treating Alzheimer’s disease is still open. While researchers agree that there are several plausible mechanisms, there is disagreement in the scientific literature about how significant the effects are in improving cognitive functioning as well as other key metrics. But with some positive results in hand, there’s no way Novo Nordisk or other drug developers will stop investigating.

The economic potential of using some of today’s weight loss drugs to treat Alzheimer’s disease could be significant. According to a report by GlobalData, by 2030, the Alzheimer’s drug market could reach $13.7 billion annually.

But that probably understates the impact of earnings. Novo Nordisk and its peers are spending hugely to expand their manufacturing facilities to produce more doses already; imagine if the same manufacturing infrastructure could be used for an even larger market than before. They should not spend much to get even more income.

Don’t count the eggs before they hatch

There is still a lot of research and development (R&D) work to be done before any of the current slimming stocks can actually claim to be a stock in Alzheimer’s medicine. Novo Nordisk is the furthest along on this front and is likely to cross the finish line first, assuming any company does. Under ideal conditions, semaglutide could gain an additional indication to treat the disease within a few years.

Given what is known today, GLP-1 drugs are unlikely to be a panacea for Alzheimer’s disease. No studies have proven that they can address the root cause, nor is there clear evidence that they are able to alleviate key problems such as impaired glucose metabolism in the brain.

However, at this time there is not much to suggest that there are major risks associated with the use of these drugs in Alzheimer’s patients. This means that regulators will likely be more willing to accept a moderate degree of efficacy when companies apply for an expanded indication, assuming no treatment for the disease is developed between now and then. After all, the therapies on the market right now are far from perfect, so any new drug that is a step in the right direction will be welcome.

In short, the investment case for Novo Nordisk just got even stronger thanks to its continued development efforts with semaglutide. And it’s not the first time this has happened – not the second, not the third. This is yet another reason to buy the stock.