Novo Nordisk (NOVO B), Europe's largest company by market capitalisation, reported earnings on May 2.

The Danish pharmaceutical giant saw demand continue to rise for its weight-loss drugs, Ozempic and Wegovy, reporting first quarter earnings above analyst’s estimates.

The drugmaker’s quarterly net profit was 25.41 billion Danish kroner (€3.35 billion), up from 19.81 billion kroner a year ago. Sales of Ozempic and Wegovy increased 25% year on year, and sales in the company's North American operations rose 34%, helped by longer-lasting insulins. The drugmaker’s operating profit was above consensus forecasts.

Morningstar strategist Karen Andersen raised her fair value estimate for Novo Nordisk to DKK 600 per share, from DKK 570, after the quarterly report, meaning share prices are still 45% higher than the estimated fair value.

“While we continue to see Novo Nordisk as a company with great potential and strong intellectual property around its cardiometabolic business, we believe that the high demand for anti-obesity drugs and the tight supply have pushed the share prices above their intrinsic value," Karen Andersen says.

Key Morningstar Metrics for Novo Nordisk Stock

• Fair Value Estimate: 600 DKK
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

Novo Nordisk Upgrades Outlook for 2024

Looking ahead, Novo Nordisk also updated its 2024 outlook, now anticipating sales growth between 19-27%, at constant exchange rates, slightly up from its previous projection of 18% to 26%. The company also increased its guidance for operating profit growth by one percentage point in both ends to 22-30% at constant exchange rates.

“The guidance upgrade reflects the benefit of the gross-to-net price adjustments in 1Q, with the business and capacity expansion in-line with company expectations,” UBS analysts wrote.

Obesity Drugs – Prices Fall, Competition Rises

Despite beating consensus and increasing guidance for sales growth and operating profit growth slightly, Novo Nordisk’s share price initially fell 4.5%, but recovered to -2% in the afternoon. 

Lower prices for Wegovy could be responsible for the shares trading lower after the results. Indeed, sales of this drug rose by as much as 86% to 8.2 billion DKK, but on a conference call with reporters Novo Nordisk chief financial officer Karsten Munk Knudsen said that prices of the products were “slightly down” last quarter and that the company expects them to continue to decline this year, according to Reuters.

‘We believe current share prices do not adequately account for expected price declines and competition, not to mention the risk of patients discontinuing treatment due to tolerability, cost or long-term safety concerns," Morningstar's Andersen adds.

Wegovy and Ozempic’s main competitor in the US marketplace is Eli Lilly’s (LLY) tirzepatide, which is marketed for weight loss as Zepbound and for diabetes as Mounjaro. The US pharmaceutical giant reported their earnings on Wednesday, with figures revealing high demand for competitor Zepbound.

Andersen expects Novo and rival Eli Lilly to continue to face pricing pressure in the GLP-1 market as volumes increase, even before a third company enters the market.