Riding high on Wegovy, Novo doubled its workforce. Now layoffs loom

Novo Nordisk, which nearly doubled its workforce from 43,260 to 77,350 over five years to capitalize on Wegovy's boom, is now facing significant cost pressures and heightened competition from Eli Lilly's Zepbound. This aggressive expansion led to employee costs almost doubling to $9.9 billion, contributing to squeezed gross margins and a $490 billion market capitalization decline from its peak. Consequently, new CEO Maziar Mike Doustdar has implemented a global hiring freeze for non-critical roles and is scrutinizing all cost items, signaling potential layoffs, particularly in sales, as the company pivots to efficiency amidst slowing sales and a more challenging market.

Analysis

Novo Nordisk is undergoing a significant strategic pivot from aggressive expansion to stringent cost control, driven by slowing sales of its blockbuster drug Wegovy and intensifying competition from Eli Lilly's Zepbound. The company's workforce nearly doubled over five years to 77,350, causing employee costs to surge to almost $9.9 billion and contributing to its gross margin hitting a 2.5-year low in the second quarter. This operational bloat and competitive pressure have led to two profit warnings this year and contributed to a $490 billion loss in market capitalization from its peak. In response, new CEO Maziar Mike Doustdar has implemented a global hiring freeze for non-critical roles and is signaling potential layoffs, with the sales division for older drugs like Rybelsus being a likely target. The rapid scaling, which included significant investment in manufacturing, has raised internal efficiency concerns, and the management's new focus is squarely on streamlining operations to protect profitability amid a challenging outlook that includes a potential sales dip in the second half of 2025.

Key Decisions for Investors

• Investors should closely monitor upcoming earnings for evidence of successful cost-cutting and margin stabilization, as the effectiveness of the new CEO's turnaround strategy is now the primary catalyst for the stock.
• Given the explicit threat from Eli Lilly's Zepbound, it is critical to track prescription volume and market share data for the weight-loss drug segment to gauge the extent of Novo's competitive erosion.
• Considering the two profit warnings and a strongly negative sentiment, it may be prudent to re-evaluate exposure to Novo Nordisk, as the announced hiring freeze and potential layoffs signal near-term operational turbulence and uncertainty.
• Look for management commentary on the scale and timeline of the restructuring, as any cuts to manufacturing or core sales teams could impact the company's ability to compete effectively once the cost-cutting phase is complete.