🎪The Money Circus Report #3

Obesity Wars: Can Novo Nordisk Stay on Top? ⚔️🍽️

Today is an intriguing day as we have strategically delayed releasing this article to observe the company's response to their latest earnings report. The reaction appears positive, making it an opportune moment to share our insights with our readers about this impressive company.

Let’s begin analyzing the latest earnings report:

1. Key Strengths of the Quarter

• Outstanding Top-Line and Profit Growth:
  Net sales grew 19% as reported (18% at constant exchange rates, CER) to DKK 78.1 billion.
  Operating profit rose 22% (20% CER) to DKK 38.8 billion.
  Net profit increased 14% to DKK 29.0 billion.

• Obesity Franchise Momentum:
  Obesity care sales surged 65% (CER) to DKK 18.4 billion, driven by strong demand for Wegovy® and new product launches.
  GLP-1 product sales (including Ozempic® and Rybelsus®) continued to expand, with total GLP-1 sales up 13% Y/Y.

• Cash Generation and Shareholder Returns:
  Free cash flow nearly doubled to DKK 9.5 billion (+89% Y/Y).
  DKK 36.7 billion was returned to shareholders in the quarter (dividends and buybacks).

• Operational Leverage and Efficiency:
  Gross margin remained high at 83.5%.
  Sales and distribution costs as a percentage of sales fell to 19.1% (from 20.3% Y/Y).
  Administrative costs as a percentage of sales also declined.

• Innovation and Pipeline Progress:
  Regulatory submissions for new obesity and diabetes treatments (oral semaglutide 25mg, Wegovy® multi-dose device, CagriSema).
  In-licensing of next-generation molecules and continued R&D investment.

2. Weaknesses of the Quarter

• Diabetes Market Share Pressure:
  Diabetes value market share declined by 0.6 percentage points to 33.3% (MAT), reflecting competitive pressures and the impact of compounding in the US.

• Rare Disease Segment Slower Growth:
  Rare disease sales grew only 3% (CER), and rare disease operating profit fell 13% Y/Y.

• Gross Margin Slightly Down:
  Gross margin decreased to 83.5% from 84.8% Y/Y, a 1.3 percentage point decline, likely due to product mix and higher costs.

• Full-Year Outlook Lowered:
  Management reduced the full-year outlook due to lower-than-expected branded GLP-1 penetration in the US, impacted by rapid expansion of compounding.

• R&D and Capex Up:
  R&D costs rose 20% Y/Y, and capital expenditures increased 58% Y/Y, reflecting heavy investment in pipeline and capacity.

• CO2 Emissions Up:
  Overall CO2e emissions increased 37% Y/Y, a negative for ESG-focused investors.

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Future Guidance

• Full-year outlook reduced due to lower-than-planned branded GLP-1 penetration in the US, impacted by compounding.

• Management remains focused on expanding access, preventing unlawful compounding, and progressing new product launches.

• Continued investment in R&D and capacity expansion.

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Rationale:

• Novo Nordisk delivered strong sales, profit, and cash flow growth, with exceptional performance in obesity care and GLP-1 products.

• Margins remain industry-leading, and shareholder returns are robust.

• However, the diabetes market share is under pressure, rare disease growth is modest, and the full-year outlook was lowered, but we think everything was already priced in, looking at the first market reaction.

• Heavy R&D and capex spending, and higher emissions, are also watchpoints.

Earnings Score: 8/10

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Every twist and turn in the news cycle seems to send Wall Street into a frenzy, especially concerning high-profile companies like Novo Nordisk. A single clinical trial miss, a competitor's headline, or a political soundbite can suddenly send the stock into freefall, as if the business itself is crumbling overnight. However, the drama in the share price often exaggerates the actual impact on the company’s future. In this analysis, we’ll look beyond market theatrics and focus on what truly matters for Novo Nordisk’s long-term value, avoiding unnecessary complexity.

Let’s get to the heart of the matter.