Underlying sales increased by 7% before currency moves to DKK 78.5bn driven by volume growth in GLP-1 sales in both the US and International divisions, which more than offset a decrease in prices.
Operating profit was up 11% to DKK 33.4bn, while free cash flow increased 57% to DKK 42.5bn driven by operational performance and a decrease in capital expenditure.
Net debt fell by DKK 8.9bn in the first half to DKK 86.5bn after DKK 41.2bn was returned to shareholders in share buybacks and dividends.
Both adjusted sales and operating profit growth guidance has been raised to between -6% and 0%
The shares fell 4.1% in early trading.
DKK = Danish Kroner
Our view
Novo Nordisk’s second quarter showed further evidence that momentum in the Wegovy pill and sharper pricing are lifting demand for its weight-loss drugs, helping management upgrade full-year guidance. Recent launches should provide a further tailwind in the second half, but the market is increasingly focused on the battle for supremacy in ‘skinny pills’.
Oral Wegovy has provided a significant boost, but pill sales were held back as US customers worked through existing inventory and came in a little short of forecasts. With GLP-1 expectations high, even a modest shortfall weighed on sentiment.
Competition from arch-rival Eli Lilly remains intense, but the GLP 1 market is huge and underpenetrated. If patient access improves, we think Novo has plenty of room to grow over the longer term. Expanding into different disease areas is another lever, with the evidence base still building. Management is also watching costs closely, and despite lower prices, operating margins are holding above 40%.
With 35 new country launches made for Wegovy last year, overseas progress is something to watch, and sales outside of the US have been encouraging so far this year. Momentum for the Wegovy pill remains strong, and so far, it’s competing well with Eli Lilly’s newly launched oral option. Approval of a high-dose formulation of injectable Wegovy brings another choice for doctors to prescribe.
Longer term, much depends on who wins in the next generation of anti-obesity medicines. Novo’s pipeline spans several approaches, but competition is building. Upcoming studies, including higher-dose CagriSema work, will help show whether it can stay near the front of the next wave of obesity treatments. We’re also keeping an eye on the rare disease pipeline, where the group is hoping for some near-term approvals. While unlikely to move the dial like GLP 1 development, it could become more meaningful over time.
Novo’s 3.8% dividend yield looks sustainable with share buybacks also on the table, but there are no guarantees. Management action is starting to steady the ship, but confidence remains fragile. The valuation continues to trail the long-term average, reflecting expectations that revenue will decline this year for the first time since 2017.
If Novo continues to deliver on its turnaround plan, we do see some upside to forecasts. But the narrative needs to move from managing decline to returning to strong profit growth. Fierce competition and the risks inherent with investing in the sector continue to present a challenging backdrop, so patience is needed.
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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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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