Novo Nordisk Earnings: High Expectations as the Firm Sprints Ahead In Pharmaceuticals

Key Morningstar Metrics for Novo Nordisk

• Fair Value Estimate: $80.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

Novo Nordisk NVO will release its full-year earnings on Jan. 31. The firm has sprinted ahead in Europe’s pharmaceutical sector on the back of overwhelming demand for its diabetes and weight loss drugs. It seems likely the company will achieve its 2023 targets, given its robust performance in the first nine months of the year, with a 33% increase in sales and a 37% growth in operating profit at constant currencies.

Novo’s updated 2023 guidance in its third-quarter earnings report projected 32%-38% top-line growth and 40%-46% operating profit growth, slightly surpassing previous expectations. The strong performance is attributed to higher-than-anticipated sales of GLP-1 therapies in the United States, particularly driven by the diabetes drug Ozempic and the obesity drug Wegovy.

Will Surging Demand Drive Stock Success?

This rising demand has led to high market expectations for Novo’s report. “We’re assuming the firm can see 28% revenue growth and 37% operating profit growth,” says Morningstar equity and credit analyst Karen Andersen. “I think Novo Nordisk and Eli Lilly LLY are poised to dominate this market for at least the next several years while competitors play catchup and design more convenient orals or products with fewer tolerability issues. Overall, we see a more than $100 billion market for obesity/overweight drugs by 2031, when Novo’s key patent expires.”

The firm’s challenge ahead lies in how quickly it can adapt its manufacturing scale to meet the demand for Ozempic and Wegovy while fending off competition from Lilly’s Mounjaro and Zepbound. “Lilly is very new to the obesity market, with the recent approval of its diabetes drug Mounjaro as Zepbound for obesity,” Andersen says. “Zepbound looks more effective than Wegovy, so we expect it to quickly gain a significant share of this market, but there is plenty of room for both firms to see strong double-digit growth for years.”

The Key Question: How Long Do Treatments Last?

The market wants to know how long the average patient stays on weight loss therapies. Do they continue beyond their plateau point when they stop losing weight?

“All the data points to a need to continue therapy to maintain weight loss, and we think patients will be motivated to stay on therapy longer term, although we do see some patients dropping off therapy due to affordability or tolerability issues,” Andersen explains. In terms of Novo Nordisk’s pipeline, she says we could see early data for a next-generation oral obesity drug in conjunction with earnings. Later in the year, she’s expecting more data on the firm’s oral semaglutide (the drug also used in Ozempic and Wegovy).

“Although we think the launch is likely to be delayed due to supply concerns (a much higher dose is needed for oral delivery of this drug), the most important pipeline drug for Novo at this point is cagrisema, which could be a more effective and more tolerable treatment in both obesity and diabetes,” Andersen says. “Phase 3 data in obesity is coming later this year as well.”

Fair Value Estimate for Novo Nordisk

At the end of November 2023, Morningstar’s analyst raised Novo Nordisk’s fair value estimate to $80 per share after significantly raising the assumptions for the uptake of GLP-1 therapies in diabetes and obesity, as well as adding sales for overweight patients.

“We expect Novo’s obesity sales could peak at $28 billion by 2031, ahead of semaglutide’s 2032 patent expiration,” Anderson wrote in a note published Nov. 29. “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.”

Novo Nordisk’s Economic Moat

Novo has been in this business for over 85 years, and it claims 32% of the $50 billion diabetes treatment market and roughly half of the $15 billion insulin market. Diabetes prevalence is expected to soar in the coming decades because of an increasingly overweight and aging population. Morningstar expects Novo to maintain its wide economic moat as it continues to dominate the treatment marketplace.

Semaglutide’s potential in new indications also gives us confidence here. The drug received U.S. approval as Wegovy in June 2021, and it is in phase 3 testing in areas like non-alcoholic fatty liver disease, Alzheimer’s, and heart failure. Novo is also testing new combination regimens like cagrisema, which could offer even more compelling blood sugar control and weight loss. This could help the firm maintain a solid position against Lilly.