Company Reports

We’re not making any changes to our DKK 600/$86 fair value estimate for Novo Nordisk following somewhat disappointing early data for a novel oral obesity drug candidate, CB1-targeting monlunabant. We had not yet included monlunabant explicitly in our model, and we continue to see Novo’s progress with amylin-containing drug candidates—including phase 3 CagriSema (data expected later this year) and amycretin (phase 1 subcu data expected in 2025)—as more central to its obesity pipeline development. Novo and Eli Lilly are both leaders in what we see as a potential $200 billion global market for GLP-1 drugs, and their approved and pipeline obesity drugs help support their wide moats.

We’re maintaining our $580 fair value estimate for Eli Lilly and DKK 600/$86 fair value estimates for Novo Nordisk after analyzing the public and private competitive landscape for obesity drugs through 2031. New public and private entrants are emerging to challenge the leading positions of Novo Nordisk and Eli Lilly in a potential $200 billion total GLP-1 market, which we expect will see 68% of sales from weight loss indications by 2031. Given first-mover advantages and innovation with next-generation products, we expect Novo and Lilly to retain two thirds of the total market by 2031, reinforcing their wide moats. However, we view both stocks as overvalued.

We’re maintaining our DKK 600/$86 fair value estimates for Novo Nordisk following second-quarter results that were slightly below our very high expectations, but not enough to significantly sway our full-year expectations. In the first half of 2024, Novo Nordisk’s revenue grew 25% at constant currencies, with 32% GLP-1 diabetes growth (largely Ozempic) and 37% GLP-1 obesity growth (Wegovy). Management slightly raised its expected 2024 sales growth by 2 percentage points at the midpoint to 22%-28% at constant exchange rates (from a prior range of 19%-27%). Excluding an impairment related to a failed trial of cardiovascular drug ocedurenone, management’s 2024 operating profit growth expectations increased by roughly 4 percentage points, and we think the firm looks on track to produce solid double-digit performance in line with the midpoint of guidance in the second half.

As a pioneer in diabetes care, Novo has been in the business for over 85 years and claims 34% 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 34% 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 reported constant currency sales growth of 24% in the first quarter, in line with the 25% constant currency sales growth assumption we had built into our model for 2024. First-quarter growth was heavily driven by GLP-1 sales growth in diabetes (32%, mostly from Ozempic) and obesity (42%, mostly from Wegovy). Management increased constant currency sales growth guidance for 2024 by 1 percentage point (from a range of 18-26% to a range of 19-27%), and we've increased our sales growth assumption to 26%. We think operating income growth could be slightly higher at 29%, also at the high end of management's updated guidance. This increased our fair value estimate from DKK 570/$84 to DKK 600/$86, but share prices are still 45% higher than our increased valuation. While we continue to see Novo Nordisk as a wide-moat firm, with strong intangible assets surrounding its cardiometabolic business, we think the high obesity drug demand and scarcity of supply have driven share prices above their intrinsic value. We assume that Novo Nordisk is capable of growing GLP-1 sales across indications from roughly $24 billion in 2023 to nearly $75 billion by 2031, prior to the patent expiration for semaglutide, the molecule in Ozempic and Wegovy. We think current share prices do not properly account for expected price declines and competition, let alone the risk of patients discontinuing therapy due to tolerability, cost, or long-term safety issues.

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.