Novo Nordisk faces pricing pressure in the GLP-1 market despite increasing demand

From Morningstar: 2024-08-05 11:16:00

Novo Nordisk, Europe’s largest company by market capitalization, is preparing to release its second-quarter earnings report on August 7th. The Danish pharmaceutical giant accounts for 34% of the global diabetes market and is focusing on increasing the supply of its GLP-1 therapies to meet the growing demand.

Despite increasing demand for Novo Nordisk’s diabetes and obesity products, pricing pressure in the GLP-1 market persists as volumes rise. The company, along with competitor Eli Lilly, faces challenges in pricing, coverage by insurers, and potential competition in both the diabetes and obesity sectors.

Morningstar estimates Novo Nordisk’s fair value at 600 DKK, indicating that the stock is currently trading at a 45% premium. While the company is viewed as having a wide economic moat due to strong intangible assets, share prices may be overvalued based on expected declines in prices and competition in the market.

Novo Nordisk’s economic moat is supported by its strong intangible assets in diabetes and related diseases, providing long-term profitability. However, the company faces challenges as its focus shifts from insulin to GLP-1 therapies, with potential competitors entering the market with easier-to-manufacture pill treatments.

Bulls believe Novo’s obesity therapy Wegovy and portfolio of GLP-1 products position the company for growth in various markets. Semaglutide’s potential in areas like liver disease and Alzheimer’s is also seen as a positive factor for Novo.

Bears point out challenges for Novo, including pricing pressure on Tresiba in the insulin market, slow uptake of oral GLP-1 Rybelsus, and competition from other companies in the obesity drug market. Supply constraints have also affected the launch of Novo’s obesity drug Wegovy.



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