Novo Nordisk’s revenue increased by 23% in the third quarter to 71.3bn Danish Kroner (DKK) when ignoring currency effects, missing consensus estimates by 1.6%.
Within the core Diabetes and Obesity care category, growth in Ozempic (+26%) and Wegovy (+81%) more than offset slower growth of insulin-based products.
Operating profit was slightly ahead of consensus, rising 26% to 33.8bn DKK, as revenue growth outpaced rising costs.
Free cash flow over the first nine months fell 5.0% to 71.8bn DKK reflecting an increase in investment expenditure. Net cash at the quarter-end was 17.9bn DKK.
Spending on share buybacks fell from 20.2bn DKK to 12.7bn DKK, but when considering dividends, total shareholder payouts has risen 9.4% to 56.8bn DKK.
Full-year guidance range was narrowed a little, and now stands at 23-27% for sales growth and 21-27% for operating profit before currency impacts.
The shares were up 7.6% in early trading.
Our view
Despite a small top line miss in the third quarter, sentiment towards Novo Nordisk shares has strengthened, with investors choosing to focus on the building momentum for anti-obesity therapy Wegovy, and improvements in profitability.
Novo Nordisk’s fastest-growing products are its range of GLP-1 injections for the treatment of type 2 diabetes and, more controversially, as a weight-loss aid.
The market opportunity for this new generation of obesity treatment has the potential to support strong growth for many years, particularly as more use cases emerge for the treatment of associated medical conditions such as osteoarthritis and liver and kidney diseases. Recent late-stage clinical data has given management the confidence to target an application for approval in certain liver conditions in the first half of 2025. But there are still a lot of hoops to jump through.
But concerns are emerging about the long-term safety of GLP-1 and Novo has attracted criticism for its marketing practices for one of its other obesity treatments. Potential restrictions on usage and marketing, as well as emerging competition, are risks to watch out for further down the line.
Downwards pressure on pricing, particularly in the United States, where the private cost of Wegovy is over $1,300 per month, could impact profitability further down the line.
A dominant market share and attractive end markets would be enough to attract investors' attention on their own, but Novo also runs a pretty tight ship operationally. That's allowed the group to boast operating profit margins consistently over 40%. There are some headwinds to margins as Novo seeks to internalise more of its supply chain and drive the research agenda, but overall they remain very robust,
Manufacturing bottlenecks still seem to be the main constraint on growth across the business. Despite these challenges, the group expects operating profit to grow between 21-27% this year - hardly a snail's pace.
Novo’s strong financial position means it can afford the $11bn pledged to acquire three manufacturing sites from Catalent this year. Looking further ahead, the prospect of oral medicines may result in both a more scalable route to market and one with more customer appeal. But there can be no guarantee that a successful oral formulation will be developed.
There’s plenty to be excited about, and Novo’s valuation doesn’t look as demanding as it has done in recent times. But sentiment towards the stock can be volatile, which means the shares are sensitive to disappointments in both financial performance and clinical data.
Environmental, social and governance (ESG) risk
The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, Novo Nordisk's management of ESG risks is strong. Executive pay is linked to both financial and non-financial targets, including sustainability targets, though it's unclear exactly how the two are linked. Novo Nordisk's product quality and safety programmes are adequate. The company also addresses pricing and access to medicine in emerging markets and the US. In general, Novo Nordisk has strong policies and programmes to address business ethics issues, but fails to address anti-competitive practices and has been implicated in alleged price fixing and questionable promotional activity controversies.
Novo Nordisk key facts
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