Novo Nordisk Earnings: Market Overestimates GLP-1 Market Growth Opportunity

Novo Nordisk’s full first-quarter results were in line with our recently updated estimates, based on the company’s early results release, and we’re not making any changes to our DKK 860/$127 fair value estimates. The firm’s 25% constant currency sales growth in the quarter fits well with guidance for 24%-30% growth for the full year, with growth largely driven by expanding GLP-1 market growth in diabetes as well as the launch of GLP-1 product Wegovy in obesity. We expect Novo’s full late-stage pipeline will likely lead to operating expense growth keeping pace with strong top-line growth, and foreign exchange headwinds (tougher on operating profit than on sales) will likely cancel out any potential operating leverage. We think Novo Nordisk’s wide moat, based on innovation in diabetes and other cardiometabolic diseases, remains solid, although we think shares look overvalued at recent prices, given our uncertainty around the long-term sustainability of Novo’s increasingly semaglutide-reliant growth. That said, we expect Novo’s track record for innovation bodes well for development of new combination regimens in diabetes and obesity that could be more competitive with Lilly’s new drug Mounjaro. In addition, the long runway for GLP-1 volume growth alleviates some concerns on growth potential, even in an environment with additional competition and pricing pressure. We continue to model Novo Nordisk’s peak GLP-1-based sales at $20 billion in obesity and $27 billion in diabetes in 2031.