Novo Nordisk Earnings: Raising Our FVE on GLP-1 Demand, but Shares Remain Overvalued

We’re raising our fair value estimate for Novo Nordisk NOVO B 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.