Novo Nordisk has announced that Lars Fruergaard Jørgensen will step down from his role as CEO. The decision was made “in light of the recent market challenges Novo Nordisk has been facing, and the development of the company’s share price since mid-2024.”
He will continue in the post for an undefined period in order to support a smooth transition. The search for a successor remains ongoing.
The shares fell 1.8% on the day of the announcement.
Our view
Novo Nordisk announced it’s looking for a new commander in chief. This comes less than one month after it reduced its sales guidance for the year. In the United States, Novo’s been losing market share in the all-important GLP1 class of drugs for diabetes and weight loss. On that front, there have also been some research and development disappointments, which have weighed heavily on investor sentiment, and ultimately cost Lars Fruergaard Jørgensen his job. We still think he’s a tough act to follow.
He was manning the bridge when the active ingredient in diabetes and weight-loss jabs Ozempic and Wegovy was first approved. And during his eight-year stint, Novo has seen sales and profits nearly triple, helping it become one of Europe’s most valuable companies. There’s no guarantee a successor will successfully tackle the current challenges, and until a new boss has their feet under the table, investors will likely remain nervous.
One of Jørgensen’s key achievements has been the alleviation of manufacturing bottlenecks, but that does now mean that sales figures are a truer reflection of demand. The forthcoming ban on non-regulated versions of some of Novo’s medicines should in theory prove to be a positive for growth. But the official version is more expensive.
What’s more, rival Eli Lilly’s competing product compares well on both price and efficacy. Where sales trend following the ban will be watched closely by the market. Donald Trump’s executive order aiming to lower US drug prices to match those of other countries faces some significant hurdles for it to become reality, but it’s another risk that needs to be monitored, and could weigh on profitability if enacted.
We still think the company has a very large opportunity ahead if it can execute well. But the key beneficiaries of this rapidly growing marketplace will be the companies that secure approvals for multiple medical conditions, and demonstrate leadership in the race to bring new and improved next-generation therapies to market. Novo has a busy pipeline but there’s no guarantee it will come out on top.
With the valuation under pressure, Novo’s dividend yield looks more meaningful than it has for a while. But share buybacks have been placed on pause following a period of high investment, and no payouts can be assured. That’s particularly true while the capital allocation priorities of a future Chief Executive are unknown.
That same valuation weakness may tempt some new investors to gain exposure to a class of treatments that look set to revolutionise healthcare treatment. But some very real questions have been raised about the outlook for Novo’s market position. Until the top job’s been filled, no judgement can be made regarding the company’s strategic direction which means an elevated chance of volatility.
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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