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The healthcare industry is a very challenging environment in terms of profitability, as drug development requires huge costs for research and testing followed by approval process. Despite all this, a product may still face low sales at the end, for example due to low efficiency or other reasons. Pharmaceutical companies, such as Moderna and Pfizer, are household names, especially for their vaccines from the Covid-19 pandemic but have seen losses and stagnating revenues since vaccination rate has waned. In contrast, obesity or diabetes are among the common modern problems of humanity that are not going anywhere. In recent years, Novo Nordisk has built its market position precisely by combating these diseases using its medicines.
Novo Nordisk is unable to meet the demand
Due to the enormous popularity of its products Novo Nordisk is facing the demand it cannot meet. Since Wegovy began selling, the company has invested billions in increasing production capacity, with most of its factories located in Denmark, its home country. However, it also has production centers in other parts of the world, one of which is the US city of Clayton in North Carolina. This is precisely the region where another factory is set to be built for more than $4 billion, scheduled for completion between 2027 and 2029. Parent company Novo Holdings also took a significant step to increase the necessary production capacity when it announced the purchase of subcontractor Catalent for $16.5 billion back in February. Increasing production has been a priority for Novo Nordisk, especially since last December, when rival pharma giant Eli Lilly launched sales of its own obesity drug, Zepbound. Like Novo, its rival is also struggling to meet market demand. Some experts see the annual sales of obesity drugs worth about $150 billion by early 2030s. [1]
Stock value at all time high
Wegovy seems to be a major reason behind Novo Nordisk's success and has significantly increased the value of the company's shares since its launch in 2021. They have performed consistently well and have already gained more than 40% on the New York Stock Exchange (NYSE) since the beginning of this year. Overall, they have grown faster than the S&P 500 index and the entire healthcare sector over the past month. The company's market capitalization last year even outpaced former European leader LVMH operating in the clothing and food industry. Novo Nordisk had a market value of approximately $644 billion as of June 28, 2024, and its shares were trading near their all-time high. They reached their peak value on Tuesday, June 25, 2024, following the announcement of China’s approval of Wegovy use in the world's second largest economy.
Source: Investing.com*
Stable financial growth
As indicated in the introduction, pharmaceutical companies often must come to terms with losses or lack of growth in their revenues. However, Novo Nordisk has posted steady financial results over the past few years, driven by the success of its weight-loss and diabetes drugs. In 2023, its net profit jumped by more than 50% compared with the previous year. For the Q1 of 2024, the company posted total sales of DKK65.3 billion ($9.45 billion), up 22% year-on-year. Net profit rose as much as 28% to DKK25.4 billion ($3.65 billion). These figures thus surpassed analysts' expectations. The company is expected to release its Q2 results on August 7, 2024, and analysts are forecasting total sales of $9.86 billion which would be an 24% increase from the previous year. For this year, the company itself expects sales growth in the range of 19% to 27%. [2]
Conclusion
Novo Nordisk has become the most valuable publicly traded company in Europe thanks to the huge success of its weight-loss drugs. It has consistently outperformed market expectations and has seen stable growth. Investment in increased production capacity and expansion into new markets such as China are key factors for continued success. Sales of obesity drugs are expected to continue to grow, strengthening Novo Nordisk's position in the global market.
Sources:
https://finance.yahoo.com/news/novo-nordisk-nvo-rises-higher-214517063.html
https://www.google.com/finance/quote/NVO:NYSE
https://www.cnbc.com/2024/05/02/novo-nordisk-earnings-q1-2024-weogovy-sales-double.html
* Data relating to the past are not a guarantee of future returns.
Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. Forward-looking statements inherently involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied in any forward-looking statements.
[1], [2] Warning! This marketing material is not and must not be construed as investment advice. Data relating to the past is not a guarantee of future returns. Investing in a foreign currency can affect returns due to fluctuations. All securities transactions can lead to both profits and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s. regulated by the National Bank of Slovakia.
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