Why the shares down 41%
Since the peak this summer, Denmark’s most powerful company Novo Nordisk is down 41% and the sad trend seems to be holding. Now we can once again trade Novo at a decent dividend yield historically, but the question is whether the negative trend will continue.
Novo Nordisk compared to other companies
It may be difficult to grasp the size of Novo Nordisk. For example, compared to one of Sweden’s gems, Atlas Copco, Novo is a mouthful. Even the large Nordea in Finland is almost a drop in the ocean.
How Novo Nordisk makes money
As everyone knows, Novo Nordisk is a Danish pharmaceutical company. Generally, it is difficult to fundamentally understand all the medicines, phase studies and other things in these companies. Novo Nordisk is no exception and their arsenal of medicines and research progress is enormous.
Its majority revenue comes from the Diabetes segment and what is called Obesity care. A smaller portion comes from rare diseases where the company’s turnover is $2.5 billion.
Novo Nordisk’s own presentation describes that the number of people suffering from obesity will increase by 53% from 2020 to 2030. By that year, it is estimated that 1,246 million people will be affected.
If you have a normal BMI, it is estimated that 80% will live to the age of 70, while the chance drops significantly to 50% if you have a higher BMI, as shown in the image below. There is therefore a strong connection between a person’s weight and lifespan.
When I look at the company’s presentation for Q3, they have broken down the sales linked to each drug even more. There we find the talked-about drug Wegovy, which grows so much that it cracks and then helps people suffering from obesity to feel less hungry. The result of eating less is, strangely enough, that you lose weight…
GLP-1 is worth stopping at as it is a term often mentioned for both Novo Nordisk and their major competitor Eli Lilly. GLP-1 is a small intestinal hormone that Danish diabetes researcher Jens Juul Holst discovered back in 1986. This hormone is naturally produced in the intestine when we eat food.
The hormone stimulates the body’s own insulin production and our blood sugar drops. That’s why people were initially interested in GLP-1 when it comes to type 2 diabetes. However, GLP-1 also has another ability, namely to stimulate the body’s feeling of satiety.
We can therefore say that the world between diabetes and obesity is in a way connected via GLP-1.
Here Novo Nordisk has taken huge market shares but competes with the well-known Eli Lilly, which is their biggest competitor. Together they have a brutal market share. Others only make up 3%.
Why is Novo Nordisk’s share price falling?
The biggest reason the stock fell? There we learned that their new experimental weight loss drug CagriSema failed to meet expectations.
According to the latest study, CagriSema helped patients reduce their weight by 22.7%, which was lower than the expected 25%.
Sure, that may sound a bit much. However, we must remember that Novo Nordisk was terribly overvalued and then all it takes is a small mistake that disrupts any growth opportunities to send the stock into free fall. We have seen this many times before in other companies.
Should you buy Novo Nordisk when the stock falls?
The driving force at Novo Nordisk right now is the weight loss drug I mentioned earlier, Wegovy . In the company’s latest report from November 6, we could read how sales of Wegovy increased by an incredible 79% compared to the same quarter in 2023. It is not difficult to understand that patients who have tried all other avenues want to use the drug.
When the report came out, they also lowered their full-year guidance. They now expect sales growth in 2024 to be between 23-27%, up from 22-28% previously. It’s worth mentioning that the stock actually got a boost there and then of 8%, mostly thanks to Wegovy beating expectations.
Novo Nordisk is a magnificent quality company that has increased its dividend for 27 years in a row. Not only that, but over the past 20 years it has increased its dividend by an incredible 21% annually. Last year it increased its dividend by a fantastic 52% and this year too the dividend increase is predicted to be double-digit.
Novo Nordisk’s total sales have almost tripled in the last 10 years and the biggest growth of course comes after the pandemic when everything related to obesity drugs saw a new light of day.
However, should we summarize the situation so that future development will depend on whether Novo Nordisk or Eli Lilly emerge victorious from their battle. The fact that Novo’s new drug showed worse results than feared is of course a bad sign, but the company is still doing really well and will probably perform well in 2025 as well.
If it deviates further and loses the lead against Eli Lilly, we can expect even more price declines. Unfortunately, no one can answer how that battle will go.
Despite that, Novo Nordisk is a hugely qualitative company that has really shown its resilence during previous recessions. It is difficult to imagine how Novo Nordisk will perform worse in the long term, even if the future competitions are not only about drugs for obesity.
I myself am keen to buy Novo Nordisk and will dip my toe into the company.
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