Novo Nordisk Earnings: CVS Deal, Oral Semaglutide Support Growth Despite Compounding Uncertainty

Novo Nordisk reported robust Q2 results with 18% sales and 40% operating profit growth at constant currencies, yet reduced its 2025 growth guidance due to intense competition in its GLP-1 business from compounded semaglutide and Eli Lilly. Despite these pressures, the company is leveraging a new CVS national formulary deal for Wegovy and anticipates a 2026 launch of oral semaglutide for obesity, which could mitigate compounding risks. Morningstar maintains its $71 fair value estimate, considering the stock undervalued as current pricing factors in headwinds but not fully accounting for near-term tailwinds or long-term pipeline potential from upcoming liver disease and Alzheimer's data.

Analysis

Novo Nordisk demonstrated robust performance in the second quarter, with sales growing 18% and operating profit increasing 40% at constant currencies. This strength is contrasted by a more cautious outlook, as management reduced its 2025 growth guidance for sales to a range of 8%-14% and for operating profit to 10%-16%. This revision reflects intensifying pressure on its dominant GLP-1 franchise, which accounts for three-quarters of total sales, from both illegal compounded versions of semaglutide and branded competition from Eli Lilly's Mounjaro and Zepbound. Consequently, Novo's share is declining within a GLP-1 market projected to reach $200 billion by 2031. However, several material tailwinds are in place. As of July 1, Wegovy's exclusive placement on the CVS national formulary is bolstering prescriptions in the commercially insured market, which constitutes 90% of Novo's business. Furthermore, the planned 2026 U.S. launch of an oral semaglutide for obesity is a key strategic initiative, expected to bypass supply constraints and potentially deter compounders due to its complex SNAC technology. Near-term catalysts include a potential semaglutide approval for liver disease in Q3 and Alzheimer's data in Q4, which could further expand the drug's market potential. Morningstar maintains a $71 fair value estimate, positing that the current stock price reflects the competitive headwinds without fully pricing in these near-term commercial wins and long-term pipeline opportunities.

Key Decisions for Investors

• Investors should weigh the company's strong current execution and near-term tailwinds, like the exclusive CVS formulary win for Wegovy, against the significant long-term competitive threats from Eli Lilly and the persistent, unquantified risk from compounded drugs.
• Monitor key pipeline catalysts in H2, specifically the potential Q3 approval for liver disease and Q4 Alzheimer's data for semaglutide, as positive outcomes could significantly expand the drug's addressable market and rerate growth expectations.
• Consider the strategic importance of the 2026 oral semaglutide launch, as its potential to circumvent both supply constraints and compounding threats represents a critical factor for defending market share.
• Given the stock is viewed as undervalued with a 'High' uncertainty rating, investors may consider the current valuation an entry point, contingent on the new CEO's ability to navigate the competitive landscape and successfully execute on the pipeline.