Investment Analysis

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Business Overview

Novo Nordisk is a global healthcare company, which engages in the discovery, development, manufacturing and marketing of pharmaceutical products. It operates through Diabetes and Obesity Care, and Rare Disease segments. The Diabetes and Obesity Care segment includes diabetes, obesity, cardiovascular, and emerging therapy areas. The Rare Disease segment refers to rare blood disorders, rare endocrine disorders, and hormone replacement therapy.

One of Novo Nordisk’s drugs has become particularly popular in recent years: Ozempic. Initially developed for blood sugar control in diabetic patients, it was later discovered that doubling the dose could help with weight loss in patients suffering from obesity.

In recent months, Novo Nordisk has experienced a significant decline in the stock market due to the disappointing results of its new obesity treatment drug, CagriSema. Although it represents an improvement over the previous Wegovy, phase 3 clinical trials failed to meet investor expectations. Market sentiment was further impacted by the performance of Eli Lilly’s competing drug, ZepBound, which appears to deliver better results in terms of effectiveness.

Additionally, the weight-loss drug sector is attracting new competitors. Roche, for example, has decided to enter the market with substantial investments, increasing the competitive pressure on Novo Nordisk. However, does Novo Nordisk truly deserve such a significant devaluation compared to its competitors, or is the market overreacting to these developments? With a strong portfolio of established drugs and a leading position in the industry, this could present a long-term buying opportunity for investors.

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Products

Over the years, the company has specialized in several therapeutic areas, including diabetes, obesity, growth disorders, hemophilia, and hormone replacement therapy.

1. Diabetes:

Novo Nordisk offers a wide range of insulins and related medications for diabetes treatment:

• Long-acting insulins:
  • Tresiba (insulin degludec): A basal insulin with a duration of action exceeding 42 hours, allowing for some flexibility in dosing time.
• Rapid-acting insulins:
  • NovoRapid (insulin aspart): A fast-acting insulin used for postprandial glycemic control.
• Insulin combinations:
  • Ryzodeg (insulin degludec/insulin aspart): A combination of basal and prandial insulin for comprehensive diabetes management.
• GLP-1 receptor agonists:
  • Ozempic (semaglutide): An injectable drug that improves glycemic control and promotes weight loss (32% of total revenue).
  • Rybelsus (semaglutide): The oral version of semaglutide for type 2 diabetes treatment.
  • Wegovy (semaglutide): Approved for weight management in adults with obesity or overweight.

2. Obesity:

In addition to Wegovy, Novo Nordisk is developing other treatments for obesity:

• CagriSema: A combination of semaglutide and cagrilintide, currently in Phase III clinical trials.

3. Growth Disorders:

For the treatment of growth disorders, Novo Nordisk offers:

• Norditropin (somatropin): A recombinant growth hormone used in pediatric and adult patients with growth deficiency.

4. Hemophilia and Rare Bleeding Disorders:

Novo Nordisk provides therapies for hemophilia and other rare bleeding disorders:

• NovoSeven (eptacog alfa): A factor VII activator used for the treatment and prevention of bleeding episodes in hemophilia patients.
• NovoEight (octocog alfa): A recombinant factor VIII for the treatment of hemophilia A.

5. Hormone Replacement Therapy:

For managing menopause symptoms, Novo Nordisk offers:

• Vagifem (estradiol): A topical treatment for relief of vaginal symptoms.
• Activelle, Kliogest, Novofem, Trisequens, Estrofem: Various combinations of estrogens and progestins for hormone replacement therapy.

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Market Share

Novo Nordisk and Eli Lilly dominate the type 2 diabetes drug market, with a market share of 36.65% and 39.78%, respectively. Additionally, these treatments account for 52.90% of Novo Nordisk’s total revenue and 53.40% of Eli Lilly’s. This highlights a well-established duopoly, in which the two companies control the majority of the sector, significantly influencing market dynamics. For this reason, the article will focus on the key differences between the two companies, analyzing their strategies, products, and competitive positioning.

The type 2 diabetes drug sector is characterized by high market concentration, with the top five players collectively controlling 96.9% of global sales. This scenario reflects an industry with significant entry barriers, where competition is driven by a few dominant players with strong innovation capabilities and ample financial resources.

Over the past three years, the number of patients using GLP-1 drugs for diabetes and obesity has tripled, rising from 4 to 12 million. Novo Nordisk has strengthened its leadership, increasing its market share from 58% to 63%, while Eli Lilly has reached 34%. Other competitors remain marginal, holding just 3% of the market. This expansion has been supported by investments in production capacity, including an increase in fill-finish sites from 11 to 14 by 2024.

The market value has also grown rapidly. In the diabetes segment, the CAGR between 2019 and 2024 was 14.8%, bringing the market close to DKK 1,400 billion. Even more significant is the growth in the obesity segment, with a CAGR of 146.9% between 2022 and 2024, surpassing DKK 140 billion. Novo Nordisk has consolidated its leading position in both segments, benefiting from strong and expanding demand

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Geographic Revenues

Novo Nordisk generates 57.6% of its revenue in the United States, a percentage that is steadily increasing, with a 5% rise driven by the growing demand for Ozempic. This trend not only highlights the success of the drug in treating type 2 diabetes and managing weight but also reflects the continuous expansion of the U.S. market for these therapies. The strong demand from patients, growing support from healthcare providers, and increasingly widespread insurance coverage have solidified the United States as the company’s main growth engine. For Novo Nordisk, the second and third key markets are Asia and Europe, which together account for about 30% of total revenue, highlighting the company’s strong presence outside the United States. Although these markets are smaller than the U.S., they remain crucial for Novo Nordisk’s overall growth, with significant opportunities in diabetes and obesity treatments.

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Segment Analysis

Novo Nordisk generates most of its revenue from two main segments: Rare Disease and Diabetes & Obesity Care. Among them, the latter is by far the most profitable, accounting for 93.6% of total revenue in 2023, a significant increase from 71.1% in 2005.

This segment has been the primary driver of Novo Nordisk’s growth, recording a 20-year compound annual growth rate (CAGR) of 11%, compared to 6% for Eli Lilly over the same period. In recent years, this expansion has accelerated even further, with a CAGR of 26% over the past five years, while Eli Lilly reported 16%, confirming the increasing demand for Novo Nordisk’s treatments.

In contrast, the Rare Disease segment has maintained more stable growth over time, with annual revenue, historically ranging between $2 billion and $3 billion.

In 2024, Novo Nordisk generated approximately 70% of its revenue from just three products, highlighting a high concentration of earnings around its flagship drugs. The most popular, Ozempic, accounted for over 40% of total revenue, followed by Wegovy at 20% and Rybelsus at 8%. This strong reliance on a limited number of products underscores both the company’s commercial success in the GLP-1 drug market and a potential risk related to portfolio diversification.

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Financials

Balance Sheet Overview

Novo Nordisk has over 64 billion dollars in assets and about 30 billion in liabilities. Current assets account for 34% of the total, with only 5% in cash and 16% in short-term receivables. Non-current assets include 23% in intangible assets, of which 4% is goodwill and 19% relates to trademarks, patents, and intellectual property rights.

The value of intangible assets has increased significantly since 2020, growing from 3.4 billion to 12.6 billion in 2024, with a CAGR of 38%. This reflects an aggressive strategy in research, development, and acquisitions, which has strengthened Novo Nordisk’s competitive advantage, especially in the GLP-1 drug market for diabetes and obesity.

In comparison, Eli Lilly has intangible assets of about 6 billion dollars, representing 7% of total assets, and has seen a decrease from 7.45 billion in 2020 to 6.16 billion in 2024, indicating a more conservative strategy.

This difference shows how Novo Nordisk has a more aggressive model in expanding its portfolio, offering greater margin protection and negotiating power. It also strengthens entry barriers in the sector and defends against competition from generics and biosimilars.

On the other hand, Eli Lilly may have greater vulnerability in the long term, especially if its strategy relies too much on external innovations. However, the high value of intangible assets also carries risks, such as the impairment of patents in case of failures or unfavorable regulations, and a reliance on acquisitions rather than internal innovations. Despite this, Novo Nordisk has consolidated its competitive position with a solid and rapidly expanding portfolio.

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Ratios & Risks

Liquidity

• Current Ratio: 0.74
  Measures a company’s ability to cover current liabilities with current assets. A value above 1 indicates good liquidity.
• Quick Ratio: 0.55
  Similar to the current ratio but excludes inventories to measure more immediate liquidity. A value above 1 is generally considered positive.
• Cash Ratio: 0.12
  Indicates a company’s ability to cover current liabilities with available cash only. The higher it is, the greater the financial security.

Financial Leverage

• Total Debt/Equity Ratio: 0.71
  Measures the proportion of debt to equity. A high value indicates a greater reliance on debt.

Coverage

• Interest Coverage: 72.74
  Indicates how many times a company can cover its financial expenses with operating income. A higher value suggests a lower likelihood of difficulties in paying interest.

The company shows weak short-term liquidity, with values below 1 for the main liquidity ratios. However, it has a strong ability to cover financial obligations, as evidenced by the high Interest Coverage. The debt-to-equity ratio is moderate, indicating a reliance on debt that is not excessive but still present. Overall, despite liquidity risks, the company appears financially strong in the long term due to its ability to generate cash.

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Income Statement Overview

Revenues

In 2024, Novo Nordisk reported revenues of $40 billion, marking a 25.03% increase compared to 2023. Between 2020 and 2024, revenue grew by 93.95%, with a CAGR of 17.9%.

Over a broader 25-year horizon, the compound annual growth rate (CAGR) stands at 12.35%. The company’s expansion trajectory has historically been steady and organic, but in recent years, it has taken on an exponential pattern.

Eli Lilly, on the other hand, closed 2024 with revenues of $45 billion, showing a 32% growth compared to 2023. In the 2020-2024 period, revenues increased by 83.5%, with a CAGR of around 16%. Over a 25-year period, the compound annual growth rate is 6.1%, reflecting a more modest pace of expansion compared to Novo Nordisk.

In the comparison between the two companies, Novo Nordisk demonstrated more sustained growth, both in the short and long term. Its CAGR from 2020 to 2024 reflects a more aggressive expansion driven by the success of GLP-1 drugs. Even in the long term, Novo Nordisk has more than doubled the growth rate of Eli Lilly (6.1%), suggesting a more scalable and resilient development model. Although Eli Lilly saw significant acceleration in 2024 (+32%), Novo Nordisk maintains a structural advantage, thanks to more consistent growth and a well-established expansion strategy.

COGS & Gross Profit

Novo Nordisk reports a cost of goods sold (COGS) of approximately 16% of its revenue, a figure that has been gradually decreasing over the years. This steady decline suggests an improvement in operational efficiency and a potential strengthening of the company’s pricing power.

As a result, Novo Nordisk boasts a Gross Profit Margin of 83.85%, a particularly high level, comparable to that of Eli Lilly. This margin reflects the highly profitable nature of the pharmaceutical industry, where the added value of patented products allows companies to maintain strong profitability. The declining COGS indicates that Novo Nordisk is optimizing production, benefiting from economies of scale and an improved product mix, both of which are crucial in reinforcing its leadership position in the market.

Research & Development

In 2024, Novo Nordisk allocated $5.5 billion to research and development (R&D), which represents about 13% of its revenue. This level of spending aligns with the company’s historical trend, having consistently invested between 10% and 15% of its revenues in innovation.

Eli Lilly, on the other hand, stands out for an even greater commitment to R&D, with investments historically ranging between 20% and 25% of revenue. This approach suggests a more aggressive strategy in innovation and the development of new drugs, potentially reflecting a greater reliance on future pipelines compared to Novo Nordisk, which appears to maintain a more balanced approach between growth and profitability.

EBITDA & Net Income

As a result of the differences in R&D spending, Novo Nordisk has significantly higher EBITDA and net income margins, standing at 50% and 34.78%, respectively. These are remarkable figures that reflect the company’s efficiency and financial strength.

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Cash Flow Statement Overview

In the last year, the company recorded a record operating cash flow of $17 billion, significantly higher than that of Eli Lilly. Additionally, capital expenditures also increased considerably, reaching around $7 billion, matching Eli Lilly, and generated Free Cash Flow of $10 billion, compared to $3 billion for Eli Lilly. These results highlight a strong financial performance, with efficient cash flow management and a higher investment capacity compared to Eli Lilly, emphasizing the company’s robustness and sustainable growth.

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Profitability Ratios & Margins

The key financial indicators show performance well above the industry average:

• Gross Margin: 83.8% – Significantly higher than the industry average.
• EBITDA Margin: 50.9% – Well above the industry average.
• Net Margin: 34.8% – Excellent, far exceeding the industry average.
• Free Cash Flow Margin: 25.4% – Much higher than the industry average.
• ROA (Return on Assets): 26.3% – More than positive, above the industry average.
• ROE (Return on Equity): 82% – Impressive, well above the industry average.
• ROIC (Return on Invested Capital): 57.2% – Excellent, far beyond the industry average.

These results highlight extremely efficient management of company resources, with margins and returns positioned well above industry competitors, indicating strong profitability and optimal use of invested capital.

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Valuation Methods

Discounted Cash Flow

• WACC: 8.65%
• Terminal Growth Rate: 2.5%
• EV/EBITDA: 18,07x (Comps Average)
• Time Period: 7 Years

An analysis was conducted considering three different revenue growth scenarios to assess the impact on the stock’s valuation estimates.

WORST CASE: In this scenario, revenue growth is significantly lower than the company’s historical trend. Based on these conservative assumptions, the model returns an average intrinsic value of $95.63, translating to a potential upside of 26.5% compared to the current price.

BASE CASE: In this scenario, revenue growth is aligned with the company’s historical year-over-year growth rate. This more optimistic outlook yields an average intrinsic stock price of $134.84, implying a potential upside of 78.39%.

BEST CASE: The third and final scenario is based on a decidedly optimistic revenue growth outlook, reflecting a performance significantly above the historical trend. In this best-case scenario, the model returns a high average stock price of $159.39, corresponding to a 110.85% upside compared to the current stock value.

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Reverse DCF

The reverse DCF allows us to computewhat revenue growth rate would be necessary to justify the current stock price. In this case, the current price implies a growth rate of 3.62%, a figure that seems unrealistic, especially considering that the company’s fundamental growth rate (calculated as ROIC x Retention Rate) exceeds 40%. This result could suggest that investors are currently too pessimistic about the future growth of Novo Nordisk, underestimating the company’s expansion potential. As a result, there may be room for an upward revision of market expectations.

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Trading Comps

Selected Companies for Analysis:

• Eli Lilly
• Pfizer
• Novartis
• AstraZeneca
• Roche Holding

Average Multiples Used for Valuation Calculation:

• EV/Revenues: 7.1x
• EV/EBITDA: 18.07x
• P/E: 35.4x

Using these industry average multiples, the model provides the following implied values for Novo Nordisk’s stock:

• EV/Revenues: $64.79
• EV/EBITDA: $84.92
• P/E: $116.29

The implied average price for Novo Nordisk’s stock is $88.66, with an upside of 17.3% compared to the current price. This suggests that, based on the average multiples, the stock has significant growth potential while maintaining a conservative valuation relative to the sector’s average.

However, when we consider the valuation multiples of Eli Lilly alone, the results change significantly. Eli Lilly, in fact, presents much higher multiples compared to its competitors, with the following values:

• EV/Revenues: 18.2x
• EV/EBITDA: 43.5x
• P/E: 74.4x

Using these multiples, Novo Nordisk’s implied valuation is considerably higher, with a range that results in:

• EV/Revenues: $169.59
• EV/EBITDA: $207.40
• P/E: $244.66

This calculation leads to an implied average price of $207.22, with an upside of 174% compared to the current price. These results clearly highlight how Novo Nordisk is significantly undervalued compared to Eli Lilly, which has a much higher valuation. This disparity could suggest that the market is underestimating Novo Nordisk’s growth and value potential, despite its strong fundamentals.

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OUR OPINION

The Novo Nordisk stock has been struggling in recent months, but we don’t believe this is justified. On the contrary, we think this is completely irrational, and we argue that its main competitor, Eli Lilly, is currently overvalued.

Objectively, the only reason for Novo Nordisk’s low stock price seems to be the results of the trials for its new drugs and the competition from Eli Lilly, which has recently launched a new product that is competing with Ozempic. However, this competition does not justify the current stock price of Novo Nordisk, especially considering that the company still holds a strong competitive advantage over Eli Lilly, particularly in the GLP-1 drug sector.

It is clear that despite market challenges, Novo Nordisk has a solid strategic position and an innovative pipeline, giving it superior growth potential compared to its competitors. Therefore, the decline in its stock price seems unjustified and does not accurately reflect the company’s long-term value.