Novo Nordisk (NYSE:NVO) experienced a significant drop in its share price on Wednesday, with shares falling as much as 7.7% in early trading. The dip followed the company’s announcement of weaker-than-expected quarterly sales for its blockbuster weight-loss drug, Wegovy. This decline in sales has led the company to trim its full-year profit outlook, raising concerns among investors about the growing competition from Eli Lilly (NYSE:LLY) and the future of Novo Nordisk shares.
Wegovy Sales Miss Expectations
The most notable factor behind the drop in Novo Nordisk shares is the disappointing performance of Wegovy, the company’s highly successful weight-loss drug. Sales of Wegovy rose 53% in the second quarter, reaching 11.66 billion Danish crowns. However, this figure fell short of the 13.54 billion crowns expected by analysts. The miss has stirred worries that Novo Nordisk’s dominance in the burgeoning obesity drug market might be at risk, particularly as the company faces increasing competition from Eli Lilly’s recently launched obesity treatment, Zepbound.
The company’s Chief Financial Officer, Karsten Munk Knudsen, addressed these concerns in an interview, noting that the market’s reaction was unsurprising given the high expectations surrounding Wegovy. Despite this, the CFO downplayed the potential impact of competition on the drug’s sales, emphasizing that the company’s long-term outlook remains strong.
Profit Outlook and Market Reactions
Novo Nordisk also reported a lower-than-expected second-quarter profit, adding to investor concerns. Operating profit for the quarter rose 8% at constant exchange rates to 25.9 billion Danish crowns ($3.8 billion), but this was below the 27.3 billion crowns forecast by analysts. This weaker-than-expected profit, coupled with the miss on Wegovy sales, has led the company to lower its operating profit growth forecast for the full year. Novo Nordisk now expects operating profit growth of between 20% and 28% in local currencies, down from its previous forecast of 22% to 30%.
This adjustment in profit outlook has raised further questions about the sustainability of Novo Nordisk’s recent surge in share price, which has seen a significant rise of around 230% since June 2021. The company’s shares are now among the biggest fallers on the broader STOXX 600, approaching their February lows.
Addressing Supply Chain Challenges
One of the key challenges facing Novo Nordisk is its ability to ramp up production of Wegovy to meet soaring demand. The company has been investing heavily in expanding its manufacturing capacity, but supply chain issues have persisted. For instance, the lowest dose of Wegovy remains in shortage in the U.S. market, according to the U.S. Food and Drug Administration.
This shortage has forced Novo Nordisk to restrict supplies of the starter dose in the U.S. to ensure that patients who begin treatment can continue.
Despite these challenges, Novo Nordisk raised its sales growth outlook for the year, now expecting sales to grow between 22% and 28% in local currencies, up from its previous forecast of 19% to 27%. This increase reflects the company’s confidence in its ability to boost production and meet the growing demand for Wegovy.
Competitive Landscape
The obesity drug market is becoming increasingly competitive, with Eli Lilly emerging as a formidable rival. Lilly’s Zepbound, which was launched in the U.S. last December, has quickly gained traction, and the company is now competing with Novo Nordisk in several markets, including the U.S., Britain, and Germany. The U.S. market, where over 70% of adults are obese or overweight, remains the most lucrative battleground for these two pharmaceutical giants.
Novo Nordisk’s ability to maintain its lead in this market will be closely watched by investors, especially as the company continues to expand its product offerings and address supply chain issues. The company recently withdrew its submission to U.S. and European regulators for approval of Wegovy to treat heart failure and kidney disease, citing the need for additional data. Novo Nordisk plans to resubmit its application in early 2025.
Conclusion
The recent slide in Novo Nordisk shares underscores the challenges facing the company as it navigates a highly competitive and rapidly evolving market. While the miss on Wegovy sales has raised concerns, the company’s efforts to ramp up production and expand its product portfolio suggest that it is well-positioned to maintain its leadership in the obesity drug market. Investors will be closely monitoring Novo Nordisk’s performance in the coming quarters as it continues to compete with Eli Lilly and other rivals in this critical market.
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