Novo Nordisk's third-quarter earnings were solid enough to soothe investor jitters and turn the market's attention toward upcoming trial results for a potentially game-changing new weight-loss drug, analysts said. Heading into Wednesday's earnings release, shares of the Danish drugmaker were down 28% from their June peak.
In August, the company surprised investors with a Q2 earnings miss before its top competitor in the diabetes and obesity drug space, Eli Lilly, posted large Q3 earnings and revenue misses last week. The combination generated concern about Novo Nordisk before its report, Barclays analyst Emily Field said in an interview with MT Newswires.
"We get prescription data, but pricing is a blind spot, so there was a ton of anxiety going in, and Eli Lilly missed big," Field said. "That really freaked people out." Novo Nordisk reported diluted earnings of 6.12 Danish kroner ($0.88) a share in the third quarter, up 22% from a year earlier and topping the Capital IQ consensus of 5.95 kroner.
Net sales rose to 71.31 billion kroner from 58.73 billion kroner, missing expectations of 71.87 billion kroner. Critically, Novo Nordisk narrowed its 2024 sales-growth guidance to the range of 23% to 27% from 22% to 28%, and its popular obesity medicine, Wegovy, posted sales growth that topped expectations.
"For all the fears going into this print, with a Wegovy beat and guidance range narrowed such that our midpoint forecast on topline still stands, we think this is good enough to provide some relief," Field said in a note to clients. Industry observers will now focus on the results of a late-stage trial for Novo Nordisk's experimental obesity medicine, CagriSema, due in December.
The new shot combines the medicine in Wegovy and Ozempic called semaglutide with a compound called cagrilintide. The company is targeting 25% weight loss in patients who use the hybrid drug, which would represent a significant step up from Wegovy's 15%. Eli Lilly's Zepbound has shown weight loss of about 21%, according to a Bloomberg report.
In order for the market to view the trial as a success, CagriSema would ideally show 25% weight loss, though results around 22% wouldn't be dire, Field said. "But below 20%, look out below," she said. "We know Zepbound is better than Wegovy, and CagriSema has to be better than Zepbound." Beyond the weight-loss figure, analysts will be looking at whether patients in the study report a so-called tolerability benefit, meaning fewer gastrointestinal side effects.
Wegovy and Zepbound users have reported experiencing nausea and diarrhea. "If they can achieve that [25%] goal and possibly see a tolerability benefit, that's when I get excited," Morningstar analyst Karen Andersen said in an interview. A 25% weight loss "may not be worth tolerating a lot worse gastrointestinal issues," she said.
Investors also await a decision by regulators on the proposed acquisition of Catalent by Novo's controlling shareholder, Novo Holdings. If approved, Novo Holdings plans to sell three Catalent fill-finish sites to Novo Nordisk, part of the company's effort to ramp up capacity to meet outsized consumer demand.
Antitrust regulators in the European Union will decide by Dec. 6 on the acquisition of the contract drug manufacturer, Reuters reported Monday, citing a company filing. Meanwhile, in the US, a group of unions and public and consumer interest organizations sent a letter on Oct. 17 to the Federal Trade Commission, urging a challenge to the deal.
Novo Nordisk executives reaffirmed their belief that the acquisition will be complete by the end of the year. "From the get-go, we assessed that this transaction would not violate any antitrust legislation," Chief Financial Officer Karsten Munk Knudsen said on the company's earnings call. "And since we have produced a lot of documents and had a number of interactions with regulators, and its's basically based on those interactions that we believe, while not concluded at this point, we still believe that the deal will close by end of this year." In the unlikely event that the deal is blocked, Knudsen said the company has a "Plan B" in place to scale up capacity.
"That's part of running a business when you don't have 100% certainty, and this is really a question about continuing to scale the way we've been scaling in the past few years," the CFO said. "So, really driving more output from our internal supply chain as well as continue to contract the external capacity, should we get into that situation." Price: 106.77, Change: -0.86, Percent Change: -0.80.