Company Reports

At its capital markets day on March 7, Novo Nordisk outlined its pipeline strategy across multiple therapeutic areas, gave directional guidance on improving operating margins beyond 2024, and revealed early phase 1 data on a novel obesity program. We’re slightly raising our fair value estimate to DKK 570/$84 from DKK 540/$80 after adjusting our margin assumptions and slightly increasing our sales estimates. We’re encouraged by the progress the firm is making beyond the semaglutide molecule used in key diabetes and obesity drugs, which is vulnerable to Medicare negotiation in 2027 and generic pressure starting in 2031. We continue to think that Novo Nordisk’s innovative track record and investment in its pipeline continue to warrant a wide moat, but we also struggle to match recent share prices in our discounted cash flow-based valuation model. Our valuation will continue to depend on advancement of competitors in obesity, and whether this is balanced by advancement of Novo’s internal pipeline beyond semaglutide, including cagrisema and amycretin.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes' prevalence is expected to soar in coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

Novo Holdings, the investment manager of the Novo Nordisk Foundation and controlling shareholder in Novo Nordisk, has agreed to acquire contract developer and manufacturer Catalent for $16.5 billion or $63.50 per share in cash, which represents a 16.5% premium to Catalent’s closing price on Feb. 2. We think Novo Holdings is paying a fair price for Catalent, and we have adjusted our fair value estimate for narrow-moat Catalent to the takeover price of $63.50 per share, which is very close to our intrinsic valuation of $65 per share. Pending regulatory approvals, we anticipate the transaction will close around the end of 2024.

Novo Nordisk reported 36% full-year constant currency sales growth for the full year, ahead of our expectations and those of consensus, although operating income growth of 44% was in line with our estimates, and we're maintaining our DKK 540/$80 fair value estimate. The sales outperformance was driven by 52% growth in the firm's GLP-1 diabetes sales (largely Ozempic), despite GLP-1 obesity sales growth of 154% (largely Wegovy) which was slightly below investors' already sky-high expectations. Novo's expectations for 2024 (18%-26% constant currency sales growth) are slightly ahead of our prior forecast, and although we have now raised our near-term estimates, another significant jump in capital expenditures expected this year countered any potential valuation impact. We now assume that Novo Nordisk will be able to grow the top line by more than 20% in each of the next three years (2024-26) as it fights to meet high demand with expanded supply and contends with new competition from Lilly. We still forecast a $170 billion global GLP-1 market by 2031, with $120 billion of this from obesity/overweight and most of the market relatively evenly split between Novo and Lilly. We expect to see key data on next-generation obesity drug candidates this year that could help diversify away from the semaglutide molecule and support Novo's wide economic moat.

We’re raising our Novo Nordisk fair value estimates to DKK 540/$80 (from DKK 475/$70) after updating our long-term GLP-1 model to include wider use and greater adherence. We have increased our assumptions for overall biopharma GLP-1 sales in 2031 to nearly $170 billion across diabetes ($50 billion), obesity ($85 billion), and overweight ($35 billion). This includes nearly $140 billion in sales from big biopharma firms Novo Nordisk ($65 billion), Eli Lilly ($65 billion), Pfizer ($4 billion), and Amgen ($3 billion), which is higher than our prior estimate of just over $100 billion. Overall, we assume a greater proportion of patients will receive (and stay compliant with) treatment, including overweight (lower BMI) patients, albeit with more competition and at a lower price. We now think more than 25% of obese Americans and 15% of overweight Americans will receive treatment in 10 years, with the vast majority receiving branded GLP-1 therapies. We think prices could fall substantially as volumes increase (in line with payer contracts) and as new entrants launch (beginning in 2026-27), with average net prices falling from roughly $8,000 annually to $3,000 in 10 years. Beginning in 2032, we expect low-cost generic semaglutide to increase treatment rates, likely focusing sales of next-generation products like Novo Nordisk’s cagrisema and Eli Lilly’s retatrutide on patients with higher BMIs who require the most potent therapies. With more than 80% of our 2026 Novo Nordisk sales forecast stemming from GLP-1 therapies, we think the still-evolving efficacy and safety profiles of these next-generation therapies creates high uncertainty around our Novo Nordisk fair value estimate, and we have raised our Uncertainty Rating to High from a prior Medium level. However, we think Novo Nordisk’s impressive innovation in the cardiometabolic space and smart capital allocation provide ample support for its wide moat.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes' prevalence is expected to soar in coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

Novo Nordisk’s 33% sales growth and 37% operating profit growth at constant currencies for the first nine months of 2023 were consistent with the firm’s pre-announced results in October. Management’s updated 2023 guidance from October—32%-38% top-line growth and 40%-46% operating profit growth—is slightly above our prior expectations, as U.S. GLP-1 sales are exceeding management’s expectations on both volume (diabetes drug Ozempic) and price (both Ozempic and obesity drug Wegovy). We’ve slightly raised our 2023 estimates (now at 33% top-line and 44% operating profit growth at constant currencies for the full year) and we continue to model strong double-digit growth through at least 2026, adding support to our wide moat rating for Novo Nordisk. However, we’re maintaining our DKK 475/$70 fair value estimate, as we stand by our existing long-term forecast for GLP-1 based drugs (including diabetes, obesity, heart failure, NASH, and Alzheimer's) of more than $100 billion at the end of the decade. We think shares are overvalued at recent prices, but we continue to watch trends on patient compliance with GLP-1 therapies and pipeline development at Novo and competitors for potential catalysts to raise or lower our long-term forecast.

Novo Nordisk raised full-year 2023 guidance that runs slightly higher than our expectations, but we are not making any fair value estimate changes as the improved outlook is just slightly above our expectations. We believe the robust demand for weight loss drugs Wegovy and Ozempic (off label) is driving the increased expectations. We continue to project annual Wegovy and Ozempic sales of DKK 88 billion and DKK 136 billion by 2027, largely in line with consensus expectations. While we expect robust sales for these two leading drugs based on excellent efficacy, we continue to view the firm as overvalued with the market likely too optimistic on the weight loss market. Nevertheless, the strong innovation in weight loss and other cardiometabolic indications continues to support the firm’s wide moat.

Novo Nordisk announced that the Flow trial testing semaglutide in patients with Type 2 diabetes and chronic kidney disease will be stopped early after an independent committee concluded that efficacy reached a high enough bar to warrant the decision. While specific data won’t be available until the first half of 2024, we think this bodes well for the drug’s ability to slow the progression of renal impairment in these patients, including a potential ability to reduce the risk of death from kidney or cardiovascular disease. We expect this further improves the case for patients to take a GLP-1 therapy early in diabetes treatment, which will likely continue to drive strong double-digit growth through at least 2025 for Novo Nordisk drug Ozempic and supports our wide moat rating for the company. However, we’re maintaining our DKK 475/$70 fair value estimate for Novo Nordisk and we think shares are overvalued at recent prices.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes' prevalence is expected to soar in coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes' prevalence is expected to soar in coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29 announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. Diabetes' prevalence is expected to soar in coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

We're raising our fair value estimate for Novo Nordisk to $140/DKK 950 from $130/DKK 900 following a strong second quarter and another full-year guidance increase from management. Sales of the most effective Novo Nordisk GLP-1 medicines available to patients in their geography—Wegovy in the U.S. and Ozempic globally—were higher than we had expected, as the firm's constrained supply of semaglutide outpaced our expectations. While Novo will continue to limit the lowest, starter doses of Wegovy, we think the firm is putting in the necessary international investment—and adding new contract manufacturer lines—to help alleviate supply constraints heading into 2024. In the quarter, 50% year-over-year growth in the firm's GLP-1 diabetes business and 188% growth in its GLP-1 obesity business countered declines in insulin (4%) and rare diseases (20%), leading to overall 36% top-line growth on a constant currency basis. We now assume constant currency growth of 29% for the full year, near the midpoint of the new 27%-33% range. The sheer size of the firm's total GLP-1 sales is beginning to dwarf its other established products, making the firm's fate more tied to the semaglutide molecule than ever. That said, with proven efficacy in diabetes and obesity, solid cardiovascular benefits, additional potential expansion into areas like Alzheimer's and liver disease, and a growing pipeline of new therapies and combinations that could build on semaglutide's success, we think the firm's moat remains wide. With our new higher estimates, we now see the global diabetes and obesity GLP-1 market reaching $100 billion annually by 2030, split relatively evenly between the two indications. Despite these estimates, we think the market is still overly bullish on Novo's shares, given significant risks from new competition and pricing pressure that aren't being factored into investor sentiment.

We’re maintaining our DKK 900/$130 fair value estimates for Novo Nordisk following additional positive data on the cardiovascular benefits of the semaglutide molecule that extend beyond diabetes and into obesity. Long-term use of Wegovy in obese or overweight patients with cardiovascular disease (but not diabetes) showed a 20% reduction in major adverse cardiovascular events (like heart attack or stroke) relative to patients taking placebo. Novo expects to file to add this to Wegovy’s prescribing labels this year. We think these positive results could be driven by a combination of weight loss, improved lipid and blood sugar levels, and improved blood pressure. GLP-1-targeting drugs have already generated positive cardiovascular outcomes data in the past in diabetes patients, including Novo’s Ozempic (26% risk reduction), and we expect additional data to come from Novo’s oral diabetes drug Rybelsus (2024) and from Lilly’s Mounjaro in two studies: against Trulicity in overweight or obese patients with diabetes (data in 2024) and against placebo in overweight or obese patients without diabetes (data in 2027). Positive cardiovascular data supports Novo Nordisk’s wide moat in cardiometabolic diseases, although we will be more comfortable once we see phase 3 data from the firm’s combination drug cagrisema, as much of Novo’s valuation is wrapped up in semaglutide.

The approval of Novo Nordisk's GLP-1 agonist Wegovy in 2021 has led to a demand surge for the active ingredient semaglutide in various forms, including diabetes drug Ozempic. Eli Lilly's approved diabetes drug Mounjaro is poised to generate even stronger weight loss and to launch in obesity around the end of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with incremental innovation in this rapidly expanding market that will support their wide moats. We assume Novo Nordisk's Wegovy, higher-dose oral and injectable semaglutide, and novel GLP-1/amylin cagrisema will support more than 35% share in 2032. Eli Lilly is likely to remain Novo's chief competitor, driven by potential launches of Mounjaro in obesity as well as an oral GLP-1 and a novel triple agonist in 2025, resulting in a 40% share by 2032. We think Amgen, Pfizer, and other biopharma firms could begin to launch their own GLP-1-based obesity drugs as early as 2025, with these new players growing to roughly one quarter of the market by 2032.

We’re raising our Novo Nordisk fair value estimates to $130/DKK 900 from $127/DKK 860 after raising our assumed sales for the firm’s obesity portfolio and pipeline, as part of a broader, more bullish view on global obesity drug sales potential. We expect Novo’s obesity sales could peak at $23 billion by 2031, ahead of semaglutide’s 2032 patent expiration. In obesity, semaglutide forms the basis of injectable obesity medicine Wegovy as well as a potential oral, high-dose semaglutide that recently generated positive data in a phase 3 trial. In the Oasis 1 trial, oral semaglutide appeared to lead to similar weight loss (12.7%, placebo adjusted and as randomized) as Wegovy (13.9% in the Step 8 trial) over 68 weeks. While Novo is likely to prioritize production of lower-dose injectable products in the near term due to supply issues, we think this gives the firm a strong position in the midterm to bring in additional sales with a regimen that could be more appealing for some obesity patients. While the 2032 patent adds risk to Novo’s long-term growth, we’re also bullish on potential for combination product cagrisema, which is currently in phase 3 trials (data expected by the end of 2024) and has the potential to improve upon the efficacy of stand-alone semaglutide, supporting Novo’s wide moat. We expect the competitive landscape to expand over the next several years but for Novo and Eli Lilly (its diabetes drug Mounjaro is likely to receive approval in obesity by the end of 2023) to remain the key competitors.

As a pioneer in diabetes care, Novo has been in the business for more than 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. The prevalence of diabetes is expected to soar in the coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.

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.

As a pioneer in diabetes care, Novo has been in the business for more than 85 years and claims 32% of the $50 billion-plus diabetes treatment market and roughly half of the more than $15 billion insulin market. The prevalence of diabetes is expected to soar in the coming decades as a result of an increasingly overweight and aging population, and we expect Novo to maintain its wide moat as it continues to dominate in diabetes and obesity therapy innovation.