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Novo Nordisk - Q1 2025 Earnings Review
When Expectations Are So Low...
The Octopus Value Investing
May 11, 2025
On Wednesday, May 7, Novo Nordisk $NVO ( ▲ 1.42% ) reported its Q1 2025 results, surpassing market expectations and triggering a strong initial reaction. Shares jumped as much as 6.9% intraday before closing up 1.3%. In this article, we break down the better-than-expected earnings and examine the key factors behind the company’s recent performance.
DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.
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Executive Summary
Strong Revenue Growth. Revenue increased +19.5% YoY (18.5% at CER), driven by Obesity Care sales, which grew +67% YoY.
Operating Income outpaced revenue growth, growing at 21.8% (20.8% at CER) thanks to lower growth of sales & distribution costs as well as administration costs.
Slower EPS growth, posting a +15% YoY due to financial expenses doubling vs Q1 2024.
FCF has almost doubled vs Q1 2024, from DKK 5020 million to DKK 9492 million.
Lowered 2025 Outlook due to competition from compounders! Sales growth is now expected to range between 13% and 21% at CER, with operating profit growth projected between 16% and 24% at CER. When reported in Danish kroner, sales and operating profit growth are anticipated to be approximately 3 and 5 percentage points lower than at CER, respectively.
Income Statement
Revenue
$NVO ( ▲ 1.42% ) reported its second-best quarter ever in sales, with revenue of DKK 78,087 million—slightly below the record set in Q4 2024, when revenue reached DKK 85,863 million, the highest in the company’s history. This translates into a revenue growth of 19.5% YoY (18.5% at CER).
Gross margin decreased to 83.5%, -130 bps vs Q1 2024 due to amortization and depreciation expenses associated with Catalent, along with costs incurred from ongoing capacity expansions.
Geographical & Product Revenue Distribution
Starting January 2025 Novo Nordisk has restructured its reported geographic areas in the following way:
As of January 2025, North America Operations and International Operations were reorganised and the sales split per area was restated to reflect the new organisation consisting of US Operations and International Operations.
International Operations cover the following Regions: EUCAN (covering Europe and Canada), Emerging Markets (covering mainly Latin America, Middle East, and Africa), APAC (covering Japan, Korea, Oceania and Southeast Asia) and Region China (covering Mainland China, Hong Kong and Taiwan).
Providing that change, revenue growth was evenly distributed between USO & IO, which grew at 20% in Danish kroner (17% at CER) & 18% in Danish kroner (19% at CER), respectively. IO’s growth - at CER - has outpaced USO’s for the first time in the last three years during which the Obesity Care segment boom propelled USO’s sales growth.
US Operations (USO)
USO experienced a slowdown in GLP-1 growth this quarter (see Figure 1). This occurred despite +17% growth in Ozempic sales, a -78% year-over-year decrease in Victoza revenue (as it is being phased out), and stagnation in Rybelsus sales (0% YoY growth). In my opinion, the Rybelsus stagnation can be explained by two factors: 1) unfavorable rebates reconciliation, or 2) Novo Nordisk's strategy to focus production on injectables in the USA to resolve the shortage and lead the FDA to remove semaglutide from the shortage list.
Figure 1: Novo Nordisk Q1 2025 GLP-1 sales split. Source: Novo Nordisk Q1 2025 report, page 29.
Moreover, Wegovy sales grew 40% YoY at CER vs 160% growth of the obesity market in the USA. The company reported that compounded GLP-1s volumes in the US negatively impacted the uptake of Wegovy® prescriptions as well as the growth of the branded obesity market during the first quarter of 2025.
Figure 2: Novo Nordisk Q1 2025 obesity sales split. Source: Novo Nordisk Q1 2025 report, page 9.
Finally, US insulin sales demonstrated strong performance in Q1 2024, growing +13% year-over-year (see Figure 1). Notably, this growth was achieved without contribution from once-a-week insulin (Awiqly), which is not yet approved for US commercialization. Within the US (USO), the fast-acting insulin sub-segment was the primary driver of this strong growth (+31%), contrasting with a -5% performance in International Operations (IO) geographies.
International Operations (IO)
IO experienced significant growth, primarily fueled by the continued launch of the weight-management medication Wegovy in additional countries, bringing the total number of markets to 25. This strategic expansion has led to a dramatic increase in international Wegovy sales, which surged by an impressive +392% at CER in the first quarter of 2024, rising from DKK 1,145 million in Q1 2023 to DKK 5,506 million. Overall, European obesity care segment growth outpaced market growth.
Rare Diseases segment also showed better development in IO, growing a +5% YoY thanks to rare endocrine disorders products increasing +51% at CER vs Q1 2024 as manufacturing debottlenecking boosted market supply.
Operating Income
Reported operating income reached DKK 38,791 million, which leaves an operating margin of 49.5%, +100 bps vs Q1 2024. Operating expenses breakdown shows us why further operating leverage was achieved during the quarter:
R&D expenses grew inline with revenue for the first time in many quarters, DKK 10,308 million (+20% YoY). This might be temporary due to the finalization of some big phase III clinical trials during Q1 2025.
Sales & Distribution costs rose by 12% in Danish kroner and by 10% at CER, reaching DKK 14,892 million. Lower S&D costs are normal for the periods when no new treatments are - which require large promotion efforts - have recently been released in large markets.
Administration costs rose by 5% to DKK 1,220 million despite a 17% increase of full time employees.
Figure 3: Novo Nordisk social performance. Source: Novo Nordisk Q1 2025 report.
Net Income
Reported net income reached DKK 29,034 million (+14.3% YoY), growing at a slower pace compared to both, revenue and operating income due to two factors:
Losses on hedged currencies, mainly related to the US dollar.
Larger interest expenses due to debt repayment in connection with Catalent sites acquisition from Novo Holdings.
Consequently net margin decreased on a year-over-year basis to 37.2%, -170 bps vs Q1 2024.
Balance Sheet
Most remarkable news is found in the cash flow statement, which shows how borrowings repayments have skyrocketed from DKK 317 million in the same period last year to over DKK 12 billion in Q1 2025. Despite that, Novo Nordisk has almost 50% of its debt in cash so the balance sheet is still pretty conservative despite Catalent’s acquisition.
Nothing else has changed since Q4 2024. I recommend you to read FY 2024 Earnings Review I worte three months ago for further details.
Cash Flow Statement
Capital Allocation
The company made the following investments:
Property, Plant & Equipment: DKK 13.4 billion, up +57.6% vs DKK 8.5 billion spent in Q1 2024.
Intangible assets: DKK 1.2 billion, +140% YoY growth.
Novo Nordisk announced two exclusive license agreements for manufacturing & commercialization during the quarter implying upfront payments of up to $275 million. The first of them is the exclusive license agreement for UBT251 triple receptor agonist from United Laboratories, excluding commercialization in China Mainland, Macau, Hong Kong and Taiwan. The second one is the exclusive worldwide license agreement of Lexicon Pharmaceuticals oral non-incretin preclinical candidate in obesity and associated metabolic disorders.
FCF Generation
Operating Cash Flow (OCF) reached DKK 24,591 million, up +71.8% from DKK 14,314 million last year. From the report it can be observed that almost the whole OCF growth can be attributed to the almost DKK 10 billion additionally paid in taxes in Q1 2024. See figure 4.
Figure 4: Novo Nordisk cash flow statement extract. Source: Novo Nordisk Q1 2025 report, page 26.
Reported FCF was DKK 9,492 million compared to DKK 5,020 million from Q1 2024.
Management Call & Guidance
This was by far the most insightful and engaging earnings call from Novo Nordisk since I began following the stock three years ago. The analysts were refreshingly direct, and the management team responded with remarkable straightforwardness.
Given the wide range of topics covered, I’ll break down this section into subsections to maintain a clear and organized structure.
Tariffs & Price Negotiations
Management confirmed the current U.S. tariffs do not materially change their outlook due to their strong presence in the country, with several facilities from all the segments in the value chain. Although, they are monitoring potential tariffs on pharmaceuticals.
U.S. Novo Nordisk has a strong presence in the U.S. with over 10,000 full-time employees across the value chain. This includes R&D and substantial manufacturing footprint. We have invested over USD 24 billion in the U.S. over the past 10 years, including ongoing expansions and improvements to our manufacturing site in Bloomington, Indiana and Casa, North Carolina. The existing U.S. tariffs does not materially change our financial outlook for 2025. That being said, we are closely following potential tariffs on pharmaceutical products in the U.S.
Considering the current footprint of Novo Nordisk in the country and its gross margin >80% I believe the impact will be quite limited if tariffs on pharmaceuticals are enforced by the Trump administration.
The CEO also commented on price negotiations related to Medicare once asked about it:
(…) We have very limited Wegovy exposure in Medicare so far. And if you take some of the others, say, overall governmental-funded channels like VA and Medicaid, those are channels with somewhat lower price points. And I think more comparable to what we see in the geographies. If you look at Ozempic, obviously, there's a bigger share of business in Medicare.
And that's then what's being discussed under the IRA. And I cannot go into specifics around it because it's still relatively early days. But I think there is an established, say, mechanism in dealing with that. So, I would actually say from an overall political risk point of view, I have to think we're in a good spot because our book of business pricing exposure is either lower or is already in ongoing price negotiations compared to perhaps other products that sit in parts of Medicare with higher price point or has not yet been opened up for negotiation.
Note: During my Novo Nordisk DCF modelling last week I estimated that 30% of Ozempic sold in the USA (where Ozempic generated DKK 91.3 billion sales in 2024) is sold through Medicare according to Medicare 2024 data. A 50% price cut (Medicare aspires to reach a 40% price cut) by 2027 would have an estimated impact of -4.5% in Novo Nordisk sales growth.
On the other hand, I consider very positive the comment of the CEO about Wegovy being included in CVS forms as the preferred obesity treatment without Novo Nordisk paying for exclusivity.
I think also the point that CVS actually chooses our brands without us paying for exclusivity is a sign that there is a very, very strong perception around Wegovy in the market.
2025 Guidance
The revenue guidance, cascaded down the P&L, has been reduced due to compounding GLP-1 impact in the USA.
We have reduced our full year outlook due to lower-than-planned branded GLP-1 penetration impacted by the rapid expansion of compounding in the U.S. Novo Nordisk is actively focused on preventing unlawful compounding.
Despite guidance reduction the company isn't lowering the amount of capital allocated to CapEx, which I like as it will support long-term growth and moat strengthening.
Regarding the buyback program, the CFO commented that although it was approved during the Annual General Meeting in March, its execution has not yet been initiated and may occur later in the year if deemed relevant. Not great to hear considering the current share price.
R&D Portfolio Development
Martin Holst Lange, Executive Vice President (EVP) of Development confirmed the initiation of REDEFINE 11 clinical trial to study cagrisema weight loss effect in longer time periods, confirming also the ongoing effort to scale-up cagrisema commercial production.
We are on track with scaling of the cagrisema supply chain, and we still expect to file for the first regulatory approval in the first quarter of 2026.
Moreover, Lars Fruergaard gave more detailed explanation in the strategy behind oral Wegovy launch:
In terms of Wegovy in a pill I think there's been a lot of interest in how the oral category sales will develop. It's clear for us all along that we have the head start here. We have not pushed it as hard as we do now until we have ramped up manufacturing. We have seen significant scaling and efficiency step-up in our API facility in the U.S. And when we submit the data to FDA, you can assume that we have what it takes to do a full launch in the U.S.
And oral Wegovy as was also alluded previously, this is a molecule with tremendous safety data. Having said that, there are patients who prefer and all, and we are pleased that we can compete very well in this segment, we believe will be way smaller than the Injectable segment. And being first to the market with a known molecule, known efficacy, known safety and also a very… Some try to say that it's not as convenient. In our view, it is very convenient. You wake up in the morning, you take the tablet with some water, and you're ready for your day. So, we believe we can play very well in a smaller segment compared to the overall injectable category and will be first assuming a positive regulatory outcome.
We can extract three powerful insights from this segment:
With the successful completion of the oral molecules production ramp-up at the North Carolina, USA facility, flat Rybelsus sales growth is unlikely to be attributable to manufacturing bottlenecks. Instead, this stagnation is probably related to either of the two alternatives proposed above.
Patients value safety over convenience. I believe this suggests that efficacy may also be a less critical differentiating factor, particularly from the patient's perspective (and likely the physician's). Consequently, patients (and physicians) may not choose one medication over another based solely on a potential +1-2% difference in weight loss.
Injectables will continue being the primary administration route, with the implications it will have in fill finish and pharma glass manufacturing companies.
Impact of Compounding
Last but not least… Compounding! The Q&A session started strong with JPMorgan analyst straightforward question about compounding:
First one on the compounders in the U.S. You've obviously done a partnership with HIMS, but HIMS themselves are suggesting that they will continue to personally compound and have a significant contribution to their business from personal compounding. That seems to be at odds with the partnership and an odds with your commentary of trying to reduce compounding and it being only allowed in rare circumstances. So, could you just talk about how you expect that to go and how you expect to deal with that in the second half?
(…)
David Moore, Senior Vice President (SVP) of Novo Nordisk Corporate Development, gave a very ambiguousreply to that question
(…) As you mentioned, we did announce collaborations with telehealth providers. The reason for this is increasingly, people living with obesity are seeking health care through telehealth companies, that we need to be where patients are and to have an offering for the real Wegovy.
(…) As we've mentioned, on May 22, we fully expect the FDA to enforce the law. And at that time, we will continue to fight against unlawful compounding, for example, mass personalization.
So he didn’t reply to the question JP Morgan analyst clearly formulated, he didn’t provide any new insight about the deal with Hims&Hers $HIMS ( ▲ 1.09% ) … but he said that mass $NVO ( ▲ 1.42% ) will continue fighting against unlawful mass compounding, which is exactly what $HIMS ( ▲ 1.09% ) is doing. If the litigation risk was over thanks to their deal, compounding was included as part of it and both companies are in good commercial terms then I would have expected some further information of the new status quo. Quite disappointing to have so little (if any) new information.
Moving on from litigations to the actual impact of compounding in the GLP-1 business Lars, Fruergaard, David Moore and Karsten Munk Knudsen (CFO) put some color on the current situation:
(…) it is really difficult as there is a significant share of the business turning into being compounded, and we estimate that that's a similar amount of business as what we have in the U.S. on GLP-1.
I would say on compounding specifically, given that the data quality on a number of patients on compounding is not very high. Then it's based on market research, where we're looking at 1 million or more patients on compounded GLP-1 today.
(…) but we have a lot of tactics in place to be able to capture patients that will no longer be able to have a bulk compounded product with effect from the second half of this year given some patients will also have inventories in place personally and therefore.
We estimate 70% of compounding is of semaglutide.
Hence, always keeping in mind that the data is not 100% reliable, we can estimate that 700k patients in the USA are using semaglutide, which equals roughly 1/3 of the 2.2 million patients using Novo Nordisk branded GLP-1 treatments. That is huge and an important growth lever if many of them can be channeled to the branded treatments.
Regarding this transition, it was emphasized that many patients likely stocked up on compounded semaglutide over the past two months, following the announcement that the shortage was resolving. This is expected to delay the uptake of the standard product among an unknown number of potential patients during H2 2025.
Moreover, Karsten also shared that Novo Nordisk data indicates that some compounding will potentially continue after 22nd of May 2025.
So yes, most likely, there will be some patients sitting within inventory on May 22, we don't have really good data on that, but that's also why we're cautioning in our outlook section of our company announcement that the market should expect a step up mainly in the second half of this year from compounding and of course, the CVS contract. (…)
(…) Also, our market research indicates a certain level of compounding, not a lot, but potentially in the mid-single digits of GLP-1 diabetes treatment in the U.S. after May 22. (…)
Conclusion
Overall, I think the report shows a robust business in a better position that what the market was discounting during the starting months of this year. GLP-1 franchise is holding double digit growth in the GLP-1 compounding peak in the USA, insulin sales are holding and Rare Diseases segment manufacturing bottleneck is solved.
There are new short-term catalysts that the company’s growth will benefit in the near term. That combined with the low expectations of the market plus the on-track execution of the R&D pipeline and capacity expansions boosted investors confidence despite the revised lower outlook presented.
Further details on the agreement with $HIMS ( ▲ 1.09% ) appear to be limited. A key question is whether compounding was included in the terms. If so, it is unclear whether Novo succeeded in persuading $HIMS ( ▲ 1.09% ) not to continue large-scale compounding. The lack of specific commentary on this particular agreement might suggest a lack of success in that area, or perhaps it was deemed unfair to comment specifically on only one of the three agreements with telehealth companies.
Appendix
Figure 5: Ozempic quarterly sales. Own elaboration.
Figure 6: Wegovy quarterly sales. Own elaboration
Figure 7: Rybelsus quarterly sales. Own elaboration
Figure 8: Rare Diseases quarterly sales. Own elaboration
DCF Model
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