Novo Nordisk (NVO -2.09%) shareholders know all about the ups and downs of pharmaceutical stock investing. From the beginning of the coronavirus pandemic through the middle of last June, shares of NovoNordisk delivered more than a five-fold return.

Unfortunately, shares of the company behind Ozempic have been trading about 39% below last year's peak. Now that it's been beaten down, investors who missed out on its big run-up might be wondering if it's finally the right time to start a position.

Here's a look at what made Novo Nordisk a top performer up until last summer. I'll also examine reasons the stock fell hard over the past eight months to see if upcoming catalysts can be expected to propel the beaten-down stock to new heights.

Why Novo Nordisk stock outperformed

Despite falling hard since last summer, shares of Novo Nordisk have more than doubled the market's overall performance. The stock is up by about 191% over the past five years compared to a 94% gain from the benchmark S&P 500 index.

Up until a few years ago, Novo Nordisk was mainly known for selling insulin and other diabetes treatments. In 2017, it launched Ozempic, a glucagon-like peptide 1 (GLP-1) receptor agonist for the treatment of patients with type 2 diabetes.

Activating GLP-1 receptors with Ozempic nudges your pancreas to secrete more insulin, making it a perfect fit for many type 2 diabetes patients. It also acts on receptors in the brain that suppress your appetite, which can lead to significant weight loss.

In 2021, the FDA approved Ozempic's active ingredient, semaglutide, for chronic weight management under the brand name Wegovy. By then, though, physicians had already begun prescribing Ozempic off-label as a weight management tool. In 2024, total semaglutide sales reached a staggering $28.4 billion and the Danish company has struggled to keep up with demand.

Why Novo Nordisk stock is down

The U.S. Food and Drug Administration (FDA) allows compounding pharmacies to ignore patent-protected market exclusivity and sell their own versions of drugs during a shortage. Those compounders include Hims & Hers Health, a business serving folks who want prescription personal care treatments without the hassles and higher expenses associated with visiting their primary care physician.

In addition to competing with compounding pharmacies, Novo Nordisk must compete with tirzepatide from Eli Lilly (NYSE: LLY). The FDA approved Lilly's GLP-1 drug, tirzepatide, under the brand name Mounjaro in 2022 for the treatment of diabetes. In 2023, the agency approved tirzepatide under the brand name Zepbound for weight management.

Lilly's drug acts on GLP-1 and glucose-dependent insulinotropic peptide (GIP) receptors. The dual action gives it an edge in terms of efficacy and sales growth. Last December, the Surmount-5 trial showed that treatment with tirzepatide resulted in 47% greater relative weight loss compared to semaglutide.

Lilly's tirzepatide grabbed heaps of market share last year with sales that rose 208% to $16.5 billion. At $28.4 billion in sales last year, Novo Nordisk's semaglutide is still the market leader. Unfortunately, semaglutide sales rose just 35% last year. Now that Surmount-5 trial results are in the hands of physicians who prescribe GLP-1 drugs, semaglutide's loss of market share could accelerate.

Eli Lilly and Novo are both developing next-generation combination treatments, but their results to date haven't been the same. Retatrutide is a three-drug combination from Eli Lilly that appears even more effective than tirzepatide.

Last December, Novo Nordisk revealed phase 3 results for cagrisema, a combination of semaglutide and an amylin analog called cagrilintide. Sadly, it doesn't look like cagrisema works any better than tirzepatide. After 68 weeks, patients randomized to receive cagrisema lost 20.4% of their weight. In a phase 3 study underpinning Zepbound's approval, Lilly's treatment reduced patients' weight by 20.9% after 72 weeks.

How Novo Nordisk stock could outperform

In February, the FDA determined that the shortage of Wegovy and Ozempic had been resolved. Compounding pharmacy groups have already filed a lawsuit in an attempt to overturn the agency's determination. If their efforts fail, as seems likely, semaglutide sales growth in 2025 could outpace 2024.

Novo Nordisk isn't finished developing cagrisema. The company intends to run a longer study with a slightly different dosage schedule that could eventually show it has a leg up on tirzepatide.

There's still a lot of room to grow for semaglutide. Some estimates suggest overall GLP-1 drug sales could reach $150 billion by 2030.

While it would be nice to have the most effective weight reduction drug, it's important to remember there will likely still be plenty of demand for semaglutide despite relatively low efficacy. Not every patient seeking weight loss solutions will want the most powerful treatment option.

At recent prices, Novo Nordisk stock sports a somewhat modest price of 23.5 times forward-looking earnings estimates. This is an appropriate multiple for a business you expect to grow earnings at a mid-to-high single-digit annual percentage over the long run. Novo Nordisk has raised earnings per share by more than 20% annually over the past five years. The next five might not be the best we've ever seen, but cagrisema could allow it to grow much faster than its present valuation suggests. Adding some shares to a diverse portfolio now to hold over the long run probably isn't a bad idea.