We came across a bullish thesis on Novo Nordisk A/S (NVO) on Substack by Felix. In this article, we will summarize the bulls’ thesis on NVO. Novo Nordisk A/S (NVO)'s share was trading at $64.49 as of April 15^th. NVO’s trailing and forward P/E were 18.76 and 15.41 respectively according to Yahoo Finance.

A scientist in a lab, researching for a breakthrough treatment for Alzheimer's disease, diabetes nephropathy, asthma, COPD, NASH, and Type 1 Diabetes.

Novo Nordisk, a dominant player in the global pharmaceutical market, has achieved impressive financial success, largely driven by its blockbuster drug, Ozempic. However, as competition in the healthcare space intensifies and market dynamics shift, the key question is whether Novo can sustain its momentum or if it is overly reliant on a single product.

Novo's business model is focused on pharmaceuticals for diabetes, obesity, and rare diseases, with diabetes care making up the largest share of its revenue. In 2024, the company reported total revenue of $40.6 billion, marking a 25% increase from the previous year. A significant portion of this growth is attributed to semaglutide, a medication used to treat both type 2 diabetes and obesity, which is marketed under the names Ozempic for diabetes and Wegovy for weight loss. These drugs have transformed Novo into a healthcare powerhouse, with Ozempic alone generating $16.7 billion in 2024, reflecting a 17.6% increase from the previous year. Wegovy, for obesity care, saw even more impressive growth, with sales jumping 73.9% to $8 billion, showcasing the growing demand for weight loss treatments.

Despite the dominance of Ozempic and Wegovy, Novo’s reliance on these products raises concerns. With over 40% of its revenue tied to a single drug, questions around sustainability linger. While the GLP-1 receptor agonists like semaglutide have proven highly effective in both diabetes management and weight loss, the looming expiration of patents after 2032 and emerging competition present potential risks. Eli Lilly’s Mounjaro, a rival drug launched in 2023, has already surpassed Ozempic in quarterly sales, and analysts predict it could surpass Wegovy in obesity care by 2027. Lilly’s aggressive pricing strategy and the launch of Zepbound, a new obesity treatment, could erode Novo's market share in the years to come.

Novo Nordisk’s dominance in the diabetes care market is also under threat from competitors like Lilly, but the company remains focused on expanding its footprint, particularly in emerging markets. Novo’s market share in diabetes care grew from 29.9% to 31.6% in 2023, with the company targeting over 33% market share by 2025. This growth is fueled by the rising prevalence of diabetes and obesity, particularly in countries like China and Africa, where Novo’s sales have surged. In addition to its strong presence in diabetes care, Novo is also innovating to maintain its competitive edge, exemplified by its $11 billion acquisition of three Catalent manufacturing sites in 2024. This acquisition will help alleviate supply shortages of Wegovy and expand production capacity, ensuring Novo can meet the growing demand for its products.

Another key challenge for Novo is the increasing competition from generics and the potential for the erosion of exclusivity once its patents expire. Generics and biosimilars pose a significant threat to the company’s profitability, and Lilly’s pipeline includes oral GLP-1 drugs that could compete directly with Novo’s injectable semaglutide. However, Novo has responded by reducing the price of Wegovy through its NovoCare Pharmacy direct-to-consumer model, which offers the drug at a more affordable rate for cash-paying patients. This strategy aims to counteract the competitive pressure and maintain its leadership position in the GLP-1 market.

Novo's financial outlook remains strong, with the company posting a net profit of $14 billion in 2024, a 13.2% increase from the previous year. This represents a remarkable 34.8% net income margin, underscoring the company’s operational efficiency. However, the reliance on a few products, particularly semaglutide, remains a double-edged sword. While Ozempic and Wegovy continue to drive revenue growth, the looming expiration of patents and increasing competition from rivals like Eli Lilly suggest that Novo will need to continue innovating and expanding its portfolio to maintain its dominance.

In conclusion, Novo Nordisk’s future is both promising and uncertain. The company’s financial strength, strong market position, and innovative pipeline provide a solid foundation for continued growth. However, competition, legal challenges, and the dependence on a single product create risks that investors must consider. As Novo navigates these challenges, its ability to maintain its leadership in the diabetes and obesity markets will be critical to its long-term success.

Novo Nordisk A/S (NVO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 64 hedge fund portfolios held NVO at the end of the fourth quarter which was 61 in the previous quarter. While we acknowledge the risk and potential of NVO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.