Novo Nordisk and Ginkgo Bioworks are joining forces. Why are you bullish on these two stocks?

Sometimes it's worth it to join forces.Novo Nordisk firms(NYSE: NVO)respond in singingGinkgo Bio firms(NYSE: DNA)Deciding to do so on April 10, they initiated a new production of carpet names that will benefit both companies. The details of the financial terms of the deal between the two parties are not yet clear, but there are at least a few reasons for shareholders to be optimistic.

If you are considering investing in these two companies now, here are a few things to consider.

Huge Production Demand Requires Novel Production Solutions

Novo Nordisk's new strategic carpet partnership with Ginkgo, which will last for five years, builds on an earlier, smaller carpet program.

This time, the two companies will focus on the production of medicines for the treatment of chronic diseases, including medicines that compete in Novo Nordisk's core areas, such as diabetes and obesity. The parties will also work together to advance unspecified early-stage projects, as well as generic manufacturing technologies that will contribute to the large-scale production of other types of medicines in Novo Nordisk's portfolio.

It is easy to see that the two companies are natural partners. Ginkgo's specialty is customized biomanufacturing solutions for customers who need industrial models of complex molecules and even microorganisms. While Ginkgo has yet to turn a profit by providing this service to its customers, it may one day realize a modular economy in the manufacturing sector, where it can earn more than it spends.

With a large name from a major drug maker, Novo Nordisk will have the opportunity to further expand its portfolio in the near term, thereby accelerating the pace of profitability.

On the other hand, Novo Nordisk's blockbuster diabetes drug Ozempic and soon-to-be-launched blockbuster Wegovy are both in high demand in the U.S., with demand outstripping supply. These two drugs have been the main reason for the company's quarterly revenue growth of about 77% over the past three years, with the most recent quarterly revenue reaching $9.5 billion.

As R&D continues to reveal more benefits for both products, demand levels are likely to increase rather than decrease over time. That explains why the company, which has invested heavily in capacity expansion this year and last, including $2.3 billion in November, is still looking for more production help. The more you produce, the more you sell, and the more likely you are to give away your business.come with a giftThe company has strong direct competitors such as

It's not clear whether ginkgo will be involved in helping to produce more Ozempic or its ilk (like Wegovy), but there are at least some clues as to what the曏 is doing. After all, what other obesity and diabetes medications in Novo Nordisk's portfolio are in short supply because of their popularity? It is unlikely that Novo Nordisk's older obesity drug, Saxenda, or its numerous insulin products will bring much profit from expanding its model, compared to producing more Ozempic or Wegovy.

It's very risky to buy one of these stocks now.

The new arrangement is a definite plus for both Novo Nordisk and Ginkgo Bio stock, and it represents the way forward for the future. However, investors should exercise caution if they intend to buy Ginkgo shares immediately.

While Novo Nordisk is highly profitable and has longer-term growth potential with its best-selling medicines, Ginkgo is a small biotechnology company that has not yet demonstrated that its core platform is capable of delivering the low-cost biomanufacturing services it envisions. Nor has it demonstrated that its manufacturing services are sufficiently attractive to potential customers to drive revenue growth. In the fourth quarter, despite having more active manufacturing programs and customers than ever before, the company's revenues were only $27 million, down $49% from the same period last year.

This is a risk, as it may never realize sufficient growth to achieve the rates desired by management, which may not actually be realized. So before investing, it's worth waiting to see if the carries with Novo Nordisk will be a step forward in clarifying uncertainty.

In contrast, shares of Novo Nordisk can be bought today. The company has a best-selling product and has cut a deal to increase capacity, so it can be viewed as relatively bullish.

Should you invest $1,000 in Novo Nordisk now?

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Alexis Calcidi does not own any of the aforementioned stocks.The Motley Fool recommends Novo Nordisk.The Motley Fool has a disclosure policy.

Novo Nordisk and Ginkgo Biologics have joined forces to carry the name. Originally published by The Motley Fool.