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Novo Nordisk - strong GLP-1 sales underpin 2023 outlook

Novo Nordisk's revenue for the first nine months of the year grew by 33%, ignoring the impact of exchange rates, to DKK (Danish Kroner) 166.4bn.

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Novo Nordisk's revenue for the first nine months of the year grew by 33%, ignoring the impact of exchange rates, to DKK (Danish Kroner) 166.4bn. That was driven by strong growth in Diabetes and Obesity care.

A 49% increase in revenue from new-generation products (GLP-1) helped the Diabetes business more than offset a fall in insulin sales. Obesity care revenue nearly trebled and now represents just over 18% of total group sales.

Operating profit grew by 37% to DKK 75.8bn in the third quarter, reflecting both the top-line growth and relatively modest cost increases.

Free cash flow improved by 21% to DKK 75.6bn over the first nine months, of which DKK 52.0bn was returned to shareholders through dividends and share buybacks. Net cash was DKK 3.6bn at the period end.

Recently raised full-year guidance was unchanged, with sales expected to increase 32-38% and operating profit 40-46%.

The shares finished the day up 3.2% following the announcement.

View the latest Novo Nordisk share price and how to deal

Our view

Novo Nordisk is a leading provider of diabetes-care products such as insulin. Currently, the key growth driver is its range of GLP-1 products for the treatment of type 2 diabetes, and more controversially as a weight-loss aid. There's also emerging evidence that it could be used to treat other chronic conditions such as kidney and cardiovascular diseases.

The market opportunity for this new generation of obesity treatment has the potential to support strong growth for many years. For now, positive data from recent clinical trials demonstrating benefits for cardiovascular health should provide the medical profession, and healthcare payers, with some added comfort around the growing patient interest in GLP-1 therapies. Novo Nordisk hopes this will support approvals that will enable clinicians to prescribe its Wegovy injections for more medical conditions. Importantly, in the US, signs are emerging that more health insurers are willing to cover the cost to patients.

But concerns are emerging about its long-term safety and Novo has attracted criticism for its marketing practices for one of its other obesity treatments. Potential restrictions on usage and marketing as well as emerging competition are risks to watch out for further down the line.

The rare disease market is another area of focus and one which has met with recent clinical success. This is something to watch but is currently a small part of the business.

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 of over 40%.

Cash conversion of these profits is impressive, allowing Novo to indulge in acquisition opportunities such as last year's addition of Forma Therapeutics, a specialist in rare blood disorders. It's also left room to invest heavily in increasing capacity, but manufacturing bottlenecks still seem to be the main constraint on growth across the business. Despite these challenges, guidance for operating profit growth has more than doubled so far this year.

The valuation's sitting some way above the long-term average and towards the upper end of its peer group. That reflects Novo's strong growth prospects and formidable market position. But with execution risks ahead and increasing competition to be mindful of, the high rating also leaves Novo vulnerable to earnings disappointments.

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.

We have some concerns though. 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

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 2023