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Novo Nordisk - GLP-1 diabetic sales drive growth and upgrades

Net sales in the third quarter were up 28% to 45.6bn Danish Kroner (DKK) with strong double-digit growth in all...

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Net sales in the third quarter were up 28% to 45.6bn Danish Kroner (DKK) with strong double-digit growth in all geographies reported, bar China, which was up 4%.

Operating profit was up 32% to 20.2bn DKK. Whilst research and development costs, as well as those related to sales and marketing grew largely in line with sales, administrative charges were up by a more modest 13%, allowing operating margins to widen from 42.8% to 44.3%.

Over the nine months of the financial year reported so far, Novo Nordisk has moved from a 15.9bn DKK net debt position, into net cash of 2.5bn DKK. That largely reflects increased cash-on-hand and reduced long-term borrowing.

Novo also highlighted the successful completion of two clinical trials.

The performance so far this year has prompted an increase in full year guidance with total sales growth before exchange rate movements now expected to be 14-17%, compared to previous expectations of 12-16%. Operating profit growth is now expected to be 13-16%.

The shares were up 5.5% by late-morning.

View the latest Novo-Nordisk share price and how to deal

Our view

Novo Nordisk is among the world's leading providers of diabetes treatments, and since diabetes is a chronic disease demand is very reliable. Insulin makes up a touch shy of 30% of the group's sales, but that's shrinking as it expands into higher-growth treatment areas.

One such area is GLP-1 products to treat type 2 diabetics. These drugs stimulate the body to produce more insulin after eating, avoiding having to inject insulin straight into the body and reducing the chances of complications.

Sales of this category have been impressive and growth of Ozempic has been rapid. The launch of Rybelsus, a tablet form of the treatment, has also added to Novo's growing market share within the diabetes care market, and is enjoying steady growth in prescriptions in the United States.

A dominant market share and attractive end markets would be enough to attract investors' attention on their own, but Novo also runs a pretty tight ship operationally. That's allowed the group to boast operating profit margins in the mid-forties.

Historically, the group's also come with a rock-solid balance sheet. And it's encouraging to see Novo return to a net cash position following the Dicerna Pharmaceuticals acquisition.

One risk to note is that insulin pricing is under pressure in the US, while competition is heating up in the smaller haemophilia business too. So far, the group's newer products and international expansion are more than offsetting those headwinds, but it's something to keep an eye on. We also note that Novo's GLP-1 therapy Victoza will shortly see its patent protection expire, but take comfort that Novo's other treatments in this class have been more than offsetting Victoza's decline.

Governments and patients are increasingly unwilling to pay extortionate prices for lifesaving, but chronic, medicines. With health systems emerging from the current crisis with budgets stretched thin, that trend is only likely to continue. The valuation is some way above the long-term average, so any material pricing changes, or failures to deliver on the research pipeline, could be a disappointment.

We continue to think Novo offers something distinctive. Pharmaceutical companies with a strong balance sheet and a defensive market aren't a dime a dozen. But the stock's valuation has been rising over the longer term, pushing down the prospective dividend yield, even as the pressures mount. That could be storing up future problems if growth slows.

Novo Nordisk key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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 Refinitiv. 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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 2nd November 2022