Going Into Earnings: Is Novo Nordisk Stock a Buy, a Sell or Fairly Valued?

Novo Nordisk NOVO B is expecyed to release its fourth-quarter earnings report on Feb. 5. Here’s Morningstar’s take on what to look for in Novo Nordisk’s earnings and stock.

· Wednesday, Feb. 5, 2025, at 07.30 CET.

What to Watch for in Novo Nordisk’s Q4 Earnings

Financials: We’re assuming Lilly will significantly gain GLP-1 market share in 2025 over Novo Nordisk, but that Novo will retain the leadership position in the global market overall. Since Novo’s overall sales are so heavily weighted in GLP-1 sales – likely more than 80% of sales in 2025 – Novo’s overall growth guidance for 2025 should give us some perspective on this market share battle.

On margins, we’re assuming operating margins can stay fairly steady in the mid 40s. Will Novo need to step up their promotional efforts as Lilly begins to market tirzepatide (Mounjaro/Zepbound) more aggressively with renewed supply?

Manufacturing: I would be interested in any more perspective on how quickly the newly-acquired Catalent manufacturing sites can start to have a meaningful impact on Novo’s global GLP-1 supply, as this will be having a negative near-term impact (operating profit and interest expense headwind, and deprioritization of share buybacks).

Just general comments on manufacturing capacity will be interesting, as there are new easier-to-manufacture small molecule GLP-1 drugs (like Lilly’s orforglipron) that could launch as early as 2026 and could more easily serve the global market.

Pipeline: My key focus for the year is on head to head data for cagrisema versus Zepbound (was it mostly trial design that led to the disappointing phase 3 efficacy data in December for cagrisema, and is the safety profile at least as good as Zepbound?), as well as how quickly amycretin can move forward to pivotal trials.

Curious how Novo is thinking about its obesity pipeline now that it looks like it has two viable amylin combination programs, cagrisema and amycretin. While cagrisema is more advanced, its efficacy was disappointing, and while amycretin had leading efficacy data, this was just from a small mid-stage study.

In terms of Novo’s oral obesity drug pipeline, it will be interesting to assess its confidence in monlunabant and see whether it is still interested in moving forward after disappointing data in September and more promising data for amycretin – or ready to pivot more aggressively to next-gen drug candidate INV-347?

Will Novo move forward with oral amycretin, now that it has data for the injectable and oral versions from early studies? Manufacturing capacity could dictate this.

Novo Nordisk Stock Price

Source: Morningstar Direct.

Fair Value Estimate for Novo Nordisk

With its 3-star rating, we believe Novo Nordisk is trading within a range we consider fairly valued.

While the pandemic has slightly slowed the launch of new oral GLP-1 therapy Rybelsus, and supply constraints slowed the launch of obesity drug Wegovy in early 2022, we expect Novo to gain $60 billion of a $120 billion global GLP-1 market in diabetes and obesity by 2028, with Lilly standing as the firm’s key competitor. We now forecast sales in obesity at DKK 270 billion in 2031, as Wegovy’s strong uptake and pipeline progress improve our confidence in Novo’s ability to expand the drug-treated obesity market. GLP-1 growth drives our overall five-year forecast for 16% top-line and bottom-line growth through 2028.

We rate the systematic risk surrounding Novo Nordisk shares as below average, and we therefore use a 7.5% cost of equity, which we believe aligns our capital cost assumptions with the returns equity investors are likely to demand over the long run. We include a placeholder for future litigation risk at roughly 2% of non-GAAP net income (high relative to the rest of the branded drug industry).

Novo Nordisk Stock vs. Morningstar Fair Value Estimate

Novo Nordisk’s Economic Moat Rating

The company’s strong intangible assets in diabetes and related cardiometabolic diseases like obesity give the firm a wide economic moat that will shield profitability for the long run. A focused research and development strategy allows the firm to repeatedly extend patent protection through innovation. Efficient manufacturing techniques and economies of scale have allowed Novo’s insulin business to provide strong global profitability, qualities that it shares with the only two other global insulin players, Sanofi SAN and Eli Lilly LLY.

However, we don’t think Novo’s cost advantages are strong enough to stand as a moat source for the entire firm, given that Novo’s foundation has rapidly shifted from insulin (20% of 2023 sales) to GLP-1 therapies (70% of 2023 sales).

Financial Strength

Novo has a strong balance sheet and ended 2023 with about DKK 30 billion in cash and marketable securities and DKK 27 billion of debt.

Novo has historically stayed away from large-scale mergers and acquisitions, and the firm’s in-house expertise in protein engineering should allow it to continue to avoid such deals. Continued pricing pressure in the diabetes market has led the firm to begin to look outside to boost its pipeline in adjacent areas, particularly with drug candidates that could prove complementary to Wegovy in obesity.

Risk and Uncertainty for Novo Nordisk

Novo Nordisk has a broad global insulin business, but price pressure and growing reliance on the high-growth GLP-1 class add volatility to potential cash flows, and we are maintaining our Morningstar Uncertainty Rating at High. Our Uncertainty Rating for Novo Nordisk is not materially affected by environmental, social, and governance risks, although we see access to basic services (tied to drug pricing) as the biggest ESG risk the firm needs to manage. Novo Nordisk sees roughly 50% of its sales from the U.S. pharmaceutical market, giving it significant exposure to U.S. policy changes.

NOVO Bulls Say

Novo’s new obesity therapy Wegovy is significantly expanding the obesity treatment market given its strong efficacy and is poised to remain a key drug in the market until patent expiration in 2032.
With a solid portfolio of GLP-1 products, including injectable Ozempic and oral Rybelsus, Novo is well positioned to defend its formidable diabetes market share.
Semaglutide is also being studied in areas including liver disease (NASH) and Alzheimer’s, and Novo could achieve a strong share in these nascent markets.

NOVO Bears Say

Tresiba’s strong profile in the long-acting insulin market hasn’t been enough to defend it from U.S. pricing pressure due to competition from Sanofi and Lilly, and biosimilar insulins have weighed on category pricing since 2017.
Novo’s Victoza and Ozempic have made GLP-1 a key part of the firm’s diabetes growth, but oral GLP-1 Rybelsus has had slower uptake, and Lilly’s newly approved Mounjaro provides strong competition
Novo’s obesity drug Wegovy had a slow launch due to supply constraints, and Zepbound, which is Lilly’s obesity drug, has a potentially superior profile.

This article was compiled by Johanna Englundh.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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