Europe's largest company, Novo Nordisk, is set to report its second-quarter earnings before European markets open on Wednesday. The Danish pharmaceutical giant experienced rapid growth in the first quarter, driven by high demand for its diabetes and obesity drugs, Ozempic and Wegovy.
Novo's shares are up 22% year-to-date after a 17% pullback from its all-time high. While analysts expect strong growth to continue in the second quarter, growing competition may increase price pressure, making its guidance crucial for investors to assess its market valuation.
Forecasts
According to FactSet's survey, Novo Nordisk is expected to report second-quarter revenue of 68.66 billion Danish kroner (€9.2bn), a 26% increase year-on-year. The net profit is forecasted at 21.38 billion Danish kroner (€2.86bn), indicating a 10% growth year-on-year but a slowdown from the 28% in the first quarter.
Demand for Novo's Wegovy and Ozempic, glucagon-like peptide-1 (GLP-1) agonists, is outpacing supply due to their effectiveness in treating obesity and diabetes. Sales of these drugs are expected to rise by 33% from a year earlier, up from 30% in the first quarter.
Demand for weight-loss treatment still high
Following the first-quarter earnings release, Novo Nordisk upgraded its 2024 outlook by one percentage point, projecting sales growth between 19% and 27% and operating profit growth between 22% and 30% at constant exchange rates.
Analysts anticipate further upgrades to its earnings guidance for the current quarter, given rising demand and expanding capacities. Novo Nordisk announced a $4.1 bn (€3.74bn) investment in June this year, to expand its US manufacturing capacity with a new plant in Clayton, North Carolina, dedicated to producing high-demand weight loss drugs such Wegovy and Ozempic.
Growing competition
While the weight-loss drug sales have significantly boosted Novo Nordisk's growth, rising competition poses challenges. Eli Lilly's weight-loss drug Zepbound is the biggest threat to Novo's sales.
According to the clinical research firm IQVIA, Lilly's Zepbound has captured roughly 40% market share in the US, with 130,000 prescriptions for the week ending July 19, compared to Novo's 200,000 for Wegovy. However, both companies face supply crunches, making their supply updates crucial for growth outlooks.
In May, Amgen announced encouraging trial results for its experimental obesity drug, causing Novo's shares to drop 5% on the day. Increased supply and competition from smaller players may put price pressure on Novo's insulin products, potentially impacting overall performance.
However, Novo Nordisk's long-term strategy in research and development may keep the company very competitive with rivals and support its expansion into new markets. CEO Lars Fruergaard Jørgensen said in the last earnings call: "Within R&D, we are pleased with the positive results from the kidney outcomes trial with semaglutide and the label expansion for cardiovascular risk reduction for Wegovy in the US."
Sales expansion in China
In 2023, Novo Nordisk has doubled its sales of Ozempic to 4.82 billion kroner (€0.65 bn) in China. In June, Chinese officials approved its weight-loss Wegovy, marking a meaningful step for the firm to enter the lucrative market with a population of 1.4 billion.
Novo Nordisk sees the great China region, including mainland China, Hong Kong, and Taiwan, as critical for the company’s future growth. It expects that the number of people with obesity will increase 161% by 20245 from those of 2021. However, the company's patent on Wegovy and Ozempic will expire in China by 2026, which offers limited time for the firm to consolidate its market share in the world's second-largest economy.
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