Danish pharmaceutical company NVO is best known for its blockbuster weight-loss and diabetes drugs, Ozempic and Wegovy. The company has recently faced pressure after cutting its 2025 sales forecast, citing growing competition in the GLP-1 drug space. Despite a recent drop in its share price, Novo remains a major player in the fast-growing obesity and diabetes treatment market. One of the issues for the share price came from the valuation-driven advance between 2022 and 2024, which saw the stock trade from sub 30x to around 40x, and now, when the earnings growth disappoints, it’s suddenly back to 12x!
- This week saw 1Q earnings per share (EPS) of $US0.92, which met analysts’ expectations. Revenue rose ~18% YoY, while operating profit grew ~20%, driven by strong global demand for diabetes and obesity treatments (e.g. Wegovy, Ozempic).
- However, Novo cut its FY sales growth guidance to 8–14% (from 13–21%) and operating profit growth to 10–16% (down from 16–24%), citing soft U.S. demand for Wegovy, competition from compounded drugs, and weaker Ozempic uptake.
On the surface, this week’s downgrade makes a degree of sense as it appears to have attempted to clear the deck for its new CEO, although it’s been painful for shareholders – we’ve witnessed similar moves across ASX stocks through recent years. The big issue for NVO is winning back the one million patients in the US who have started taking cheaper copycat options = classic market forces. Ironically, the problem is part of its own making when it couldn’t meet supply, clearing the way for compounding pharmacies to step in, whose products don’t have to go through the same rigorous approval process.
- Ozempic’s popularity surged from 2021 onwards, especially when doctors and celebrities began touting its off-label use for weight loss; the valuation is now well below those euphoric take-off levels.
On 12x and still growing earnings at 13% at the midpoint of recut guidance, this now low looks quite interesting. NVO has a strong market position, good brand awareness, and while margins have been pressured, this can be addressed.
- We believe that NVO is showing risk/reward value in the $US40-50 area, and will be one to watch when the selling momentum abates.
