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.
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. This 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, the company 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 noted in a message 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.
This new shot combines the medicine in Wegovy and Ozempic called semaglutide with a compound called cagrilintide. The company aims for 25% weight loss in patients using the hybrid drug, a significant step up from Wegovy's 15%. Eli Lilly's Zepbound has shown weight loss of about 21%, as reported by Bloomberg. To be regarded as successful by the market, CagriSema must ideally show 25% weight loss, though outcomes around 22% wouldn’t be disastrous, Field articulated. "But below 20%, look out below," she warned.
"We know Zepbound is better than Wegovy, and CagriSema has to be better than Zepbound." Beyond the weight-loss figures, analysts will also assess if study participants report a so-called tolerability benefit, which means fewer gastrointestinal side effects. Both Wegovy and Zepbound users have encountered issues such as 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 stated in an interview.
A 25% weight loss "may not be worth tolerating a lot worse gastrointestinal issues," she added. Investors are also awaiting a ruling from 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 to enhance capacity and meet unprecedented consumer demand. Antitrust regulators in the European Union are set to decide by Dec.
6 on the acquisition of this contract drug manufacturer, as reported by Reuters. Meanwhile, in the U.S., a collection 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 reiterated their confidence that the acquisition will be finalized by year's end. "From the get-go, we assessed that this transaction would not violate any antitrust legislation," Chief Financial Officer Karsten Munk Knudsen commented during the company's earnings call.
"We've produced extensive documentation and engaged in numerous interactions with regulators, and it’s based on those discussions that we believe, while not finalized at this point, we still anticipate the deal will close by the end of this year." Should the deal be unexpectedly blocked, Knudsen disclosed the company has a "Plan B" ready to scale up capacity. "That's part of operating a business when you lack 100% certainty; this is really about continuing to scale the way we've been scaling over the years," the CFO emphasized.
"We intend to drive greater output from our internal supply chain while also continuing to contract external capacity should we face that scenario.".