Novo Nordisk: Raising Our Fair Value Estimate on Sharply Higher 2023 Guidance

While full first-quarter results for Novo Nordisk NOVO B will not be available until May 4, management’s profit warning highlighted a constant exchange rate growth of 25% on the top line and 28% for operating profit, well above the growth implied in our 15.3% constant currency sales growth assumption for the full year. This result also significantly exceeds management’s prior full-year guidance for 13%-19% sales and operating profit growth at constant currencies, and this guidance has now been updated to a range of 24%-30% on the top line and 28%-34% on operating profit. Despite the fact that part of the outperformance is due to additional wholesaler inventory in the U.S., and therefore not true demand, we think most of the outperformance reflects sharply higher supply and demand of both obesity drug Wegovy and diabetes drug Ozempic in the U.S. We’re raising our near-term and long-term assumptions for both drugs in the U.S., which boosts our 2023 constant currency sales growth assumption to 28% and raises our fair value estimates to $127/DKK 860 from $115/DKK 800. We continue to see Novo’s innovation in diabetes and other cardiometabolic diseases like obesity as the foundation for its wide moat. We still see Novo Nordisk shares as overvalued, with the market underestimating the risks of the high concentration of future growth from one molecule (semaglutide) as well as emerging competition in obesity from firms including Pfizer, Eli Lilly, and Amgen. Key uncertainties include the timing of Medicare negotiation for semaglutide (we currently assume 2026) and patent expiration (we currently assume 2032 across both diabetes and obesity). As Novo’s pipeline advances, we could gain more confidence in the ability of CagriSema (a combination drug currently in phase 3) to reset the clock and refresh Novo’s GLP-1 diabetes and obesity portfolio.