Much like the long-term users of its most popular product, Novo Nordisk's (NVO 0.69%) stock has slimmed down considerably of late. Share prices of the company, which developed and sells weight loss drug Wegovy, have fallen nearly 18% in price since the start of this year. Popularity attracts competition, and investors are growing concerned that the Danish pharmaceutical giant won't be able to compete.

I've been a Novo Nordisk bull for quite some time now, and I wouldn't be as spooked by the situation. Here's why.

An increasingly crowded field

Novo Nordisk got a two-year-plus head start in the white-hot obesity drugs market, when Wegovy became the first GLP-1 drug specifically approved by the Food and Drug Administration (FDA) for that indication in mid-2021. Novo Nordisk's Ozempic was first, but it was used off-label as a weight-loss drug, and had only initially been approved as a diabetes treatment and kidney disease treatment.

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It's easy to believe in a company when it's riding high and unopposed. But late in 2023, a new entrant was approved -- mighty American pharmaceutical company Eli Lilly (LLY -0.23%) with its own GLP-1 treatment, Zepbound -- giving Novo Nordisk one of the strongest competitors imaginable.

Almost certainly, this won't continue to be a two-car race for long. Other companies, both large and small, in the healthcare field are pushing hard to develop their own obesity drugs, with varying degrees of success.

Eli Lilly alone is an intimidating presence. A mainstay on the American pharmaceutical scene, it's grown to a massive size, to the point where it's the most valuable pharmaceutical company in the world by market cap.

It can leverage its vast resources to develop and market any kind of medicine it wants, and in the obesity segment, it was already nearly there with Zepbound's FDA-approved-for-diabetes sibling drug, Mounjaro. Since then, it seems Zepbound has carved out a significant market share from Wegovy.

Precise figures are hard to come by, but according to a Goldman Sachs analysis recently reported by Barron's, Novo Nordisk is clinging to a 51% share of the roughly $28 billion market. Eli Lilly holds the rest.

Fragmentation and setbacks

Like other pharmaceutical industry pundits, Goldman Sachs is predicting that once other obesity drugs are developed successfully and approved, the market will fragment. That's a wholly believable prediction given the zeal and urgency behind many of those efforts.

Meanwhile, Novo Nordisk has taken a series of competitive blows that reduced its lead. A shortage of semaglutide -- the main ingredient of Wegovy -- led the FDA to allow compounding pharmacies to make copies of the molecule, essentially producing new competition. Although the shortage is officially over, it showed that Novo Nordisk would be vulnerable if such a situation reoccurred.

Another of the numerous fresh setbacks was a head-to-head clinical trial conducted by Eli Lilly, pitting Zepbound against Wegovy. Last December, the results of the study indicated notably more significant weight loss for participants using Wegovy.

One internal development also dented investor sentiment on Novo Nordisk, and that was the company's announcement in mid-May that long-serving CEO Lars Fruergaard Jørgensen was stepping down. When enterprises are humming along pleasantly, they rarely experience a top leader's departure.

Fighting back

Novo Nordisk isn't just absorbing hurtful blows, though; it's been busy shoring up its defenses. As 2024 came to a close, it scooped up contract drug manufacturer Catalent, bringing Wegovy production more under its direct control. That $16.5 billion deal wasn't cheap by any yardstick, but if the new asset is managed well, it should be more than worth the cost ultimately.

Novo Nordisk is also keeping up the pace with its own development activities, attempting to succeed with new medications and/or other indications for Wegovy.

Its next-generation obesity treatment CagriSema was essentially a flop. However, the company has already had success winning FDA approval for the versatile Wegovy to treat liver disorder metabolic dysfunction-associated steatohepatitis (MASH), and it's developing the drug for a clutch of other ailments. It also has other medications for different disorders in its pipeline.

Meanwhile, a score of researchers modeling the future of the obesity market feel that sales of such drugs will blast through the roof. Projections vary, but a typical one is the latest from Morgan Stanley. In May, the veteran investment bank upped its estimate for the market's peak (predicted to occur in 2035) to $150 billion, well up from its previous assumption of $105 billion.

The former number is more than 6 times the $24 billion estimated sales of 2024. The very encouraging news for Novo Nordisk bulls like myself is that even if the market gets highly fragmented with numerous competing products and loses significantly more share -- unlikely, given its first-mover prominence and the strength of the Wegovy brand name -- it'll still be a player in a huge market.

Yes, competition can be tough. There are a lot of prizes in this game, and more players are entering it. But I think this original player will manage to hold on and thrive, and I continue to consider Novo Nordisk stock a buy.