Novo Nordisk grew fist quarter sales by 18% to 78.1bn Danish Kroner (DKK) when ignoring currency movements. Obesity care was particularly strong rising by 65%, led by growth in international markets.
Operating profit rose broadly in line with sales, up 20% to 38.8bn DKK.
Free cash flow improved by 4.5bn DKK to 9.5bn DKK as better operating cash generation more than offset increased capital expenditure. Net debt was flat at 77bn DKK.
A final dividend of 7.9 DKK per share was announced back in March, increasing the annualised payout by 21% to 11.4 DKK.
For 2025, sales growth is now expected to be 13-21%, and operating profit growth is now expected to be at CER, down from respective ranges of 16-24% and 19-27%.
The shares rose 6% in early trading.
Our view
Novo Nordisk investors have shrugged off a largely expected cut to full-year guidance. Increased use in the US of unregulated alternatives to the company’s fast-growing weight-loss injection Wegovy was the driver of the downgrade. With new rules coming into effect to clamp down on this practice, there’s some hope this headwind will be coming to an end.
Solid headway on healthcare coverage, further clinical progress towards authorisations in other use cases, and impressive growth in international markets gives us confidence that there’s still a very large opportunity to convert. But with prices coming under pressure, there remains some question marks about demand in America.
The race is also on to deliver more effective and differentiated medicines in the same class. Novo’s pipeline of clinical programs is getting busier, both for existing and next generation therapies. A lot of the development has been homegrown but the company also has the firepower to in license promising experimental medicines.. As with all clinical research there’s no promises these will be met.
The prospect of an oral formulation of semaglutide (the active ingredient in Ozempic and Wegovy) is one we’re optimistic about. But competition to bring an effective weight-loss pill into a market currently dominated by injectables is building and it’s too soon to call out the frontrunner.
Despite some emerging challenges on the demand front, Novo continues to impress when it comes to profitability, with operating margins nudging 50% in the first quarter. That gives management some breathing space if prices come under further pressure.
Investment to overcome supply bottlenecks has put the balance sheet under some pressure but production issues look to have been overcome. Tariff’s are another threat to be mindful of on the supply front but Novo looks relatively well placed to cope if the sector is targeted by the US authorities.
Share buybacks have been scrapped for this year even as internal investment looks set to come back down. Dividends on the other hand are expected to rise for the 29th year in a row. Recent valuation weakness means that the prospective yield is now over 3% however, no payments are guaranteed.
Novo has an exceptional track record of growth with plenty more opportunities to go for. The valuation doesn’t look as demanding as it has done in recent times, but the market will want to see growth rates improve again if confidence is to return.
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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