Novo Nordisk Valuation Update

Almost one year has passed since I lastly published my DCF valuation template of Novo Nordisk back in May 2024. The company stock price peaked one month and a half afterwards. From the point onwards, the stock has lost 61% of its value as many risks arise together and the narrative completely shifts.

Hence, in today’s article I am revisiting my valuation model and assumptions on the company to understand if the current price reflects the actual business expected performance or if the market is overreacting.

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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Assumptions Revision

The assumptions revision will be focused on four different aspects: revenue growth, operating margin evolution, CapEx investments and terminal value.

Revenue Growth

This assumption is the most complex to unpack, as it varies across therapeutic areas. While pricing pressure exists, Novo Nordisk is actively optimizing and expanding its production capacity. Figure 1 provides an overview of the forecasted sales growth by segment.

• GLP-1 drugs

  Novo Nordisk is investing heavily in expanding the capacity of these blockbuster drugs while pressure on price continues.

  In terms of volume, a reasonable assumption is that 2025 production would double by 2029, as most of the new facilities come online and begin manufacturing GLP-1 drugs. Satellite imagery shows that the areas currently under construction — such as the major expansion at Kalundborg — are comparable in size to existing sites. Additionally, improvements in the utilization of existing facilities, like the API plant in Clayton, North Carolina, which was inaugurated a few years ago, will also contribute to higher overall output.

  As a result, I expect volume to double between 2025 and 2029, with growth slowing through 2027 before accelerating again as new factories come online and newly approved treatments reach the market, eventually stabilizing at low double-digit growth rates from 2030 onward.

  Regarding GLP-1 pricing, the 2023 annual report (figure 2) indicates that Novo Nordisk’s entire U.S. drug portfolio experienced a net price decrease of 8.2%, with insulin—accounting for 20% of revenue—seeing a 25% price decline. This implies that the remainder of the U.S. portfolio, including GLP-1 products, faced an average price decrease of approximately 4.5%. Based on this, I assume GLP-1 prices will decline by 5% annually starting in 2025.

   

  

  Figure 2: US pricing overview of Novo Nordisk portfolio in the USA. Source: Novo Nordisk 2023 Annual Report.

• Insulin

  Despite having reported a YoY growth of 17% at CER in FY24, insulin sales will keep decreasing as a consequence of price pressure and patients migration to GLP-1 treatments.

  During the 5 year period of 2018-2023, insulin sales decreased at a 3.7% CAGR. Despite there is still ongoing innovation to develop long-acting and glucose sensitive insulin, I will assume sales will continue to decrease at a 5% from 2024 reported sales.

• Rare Diseases

  Rare diseases is the therapeutic area focused in blood & endocrine disorders. After several quarters with a reduced output due to manufacturing issues which needed to be fixed the segment returned to growth, posting an all-time quarterly revenue record in Q4 2024.

  

  Figure 3: Rare Diseases quarterly revenue & sales growth. Own elaboration.

  Not only is the company renewing its current portfolio of drugs in this segment but it is also broadening it by including new disorders (e.g. sickle cell disease). This is part of Novo Nordisk’s long-term roadmap, in which the Rare Diseases therapeutic area will be the growth lever in the 2^nd half of the present decade.

  Consequently, I will assume that this segment revenue growth will return to historical low-double digit sales growth.

• Cardiovascular Diseases

  This therapeutic area comprises all the treatments related to metabolic diseases such as Chronic Kidney Disease (CKD), MASH/NASH, heart failure etc. Currently, all drugs belonging to this therapeutic area are under development and Novo Nordisk doesn’t commercialize any of them. See Figure 4.

Among the drugs in the Phase III, two groups can be differentiated: semaglutide new applications and ziltivekimab. Ziltivekimab is expected to reach the market around 2026, based on the fact that clinical phase III studies were initiated back in 2021.

Given Novo Nordisk’s proven ability to rapidly scale semaglutide production and the resulting surge in revenue, I believe it is reasonable to estimate that this new therapeutic area could account for up to 5% of the company’s total revenue by 2034.

Operating Margin Evolution

According to the company ‘s mid-term guidance, they expect their operating margin to keep expanding as they operate more efficiently. I believe there are some tailwinds supporting this margin expansion:

1. Economies of scale.

   The company will benefit from operating larger facilities, e.g. you need the same amount of operators to operate a 1 m³ fermenter than a 3 m³ .

2. Operational efficiencies

   Moreover, pharmaceutical manufacturing facilities operate in a fundamentally different way than traditional industrial plants. Unlike classical industrial processes — which often remain unchanged for decades, as seen in sectors like oil refining — pharmaceutical production is tied to the life cycle of a drug's patent, each product is manufactured for only a limited time. This creates opportunities for efficiency gains as processes are fine-tuned and optimized during the drug’s lifespan. Additionally, pharmaceutical manufacturing typically occurs in batches rather than through continuous production, meaning plants are often not staffed around the clock, with batch production usually limited to daytime shifts. Hence, better production planning can significantly improve the output.

3. Favorable product mix

   Addressing manufacturing issues in the Rare Diseases segment will enhance operating margin. This therapeutic area typically achieves a higher operating margin (>50%) than GLP-1 products but was temporarily reduced to 3.3% in FY24 due to manufacturing bottlenecks. Furthermore, the growth of GLP-1 relative to insulin is expected to improve operating margins.

The operating margin of the Diabetes & Obesity segment has increased from 41.5% in 2019 to 47.0% in 2024, reflecting an approximate CAGR of 2.5%. However, given the need to integrate Catalent facilities into the organization and the expected ramp-up of several new facilities between 2026 and 2030, I am maintaining the Diabetes & Obesity segment's operating margin flat at the 2024 level of 47.0%. Under this assumption, the recovery of the Rare Diseases therapeutic area to 2020-2022 average of 51.2% — estimated to take three years, mirroring the duration of its prior decline—will be the sole driver of operating margin improvement, representing what I consider a conservative scenario.

Investments

• Capital Expenditures (CapEx)

  Novo Nordisk is currently undergoing the largest CapEx cycle in its history. All major manufacturing sites — from Denmark to Brazil, including France and the USA — are undergoing significant expansions without exception. In addition, the company is building entirely new facilities. In December 2024, Novo Nordisk announced an investment of $8.5 billion (including $1.2 billion) to expand into Odense, Denmark’s third-largest city, with a new site dedicated to Rare Diseases.

  New facilities expansion will start producing by the end of the current year and next year while the CapEx cycle is expected to continue for the remaining years of the decade. See figure 6.

  

  Figure 6: Novo Nordisk expansion projects (until 2023) overview. CMD 2024.

  Consequently, I estimate CapEx-to-Revenue ratio will outpace revenue growth in the next three years to then moderate into the historical 12-13% average from 2030 onwards.

• Depreciation & Amortization (D&A)

  Depreciation and amortization (D&A) have been estimated based on projected capital expenditures through 2034, assuming an average asset depreciation period of eight years. This depreciation period was determined by analyzing Novo Nordisk’s reported CapEx starting from 2015 and modeling its depreciation over various time horizons. An eight-year period yielded D&A values that closely aligned with Novo Nordisk’s reported figures, after adjusting the 2024 D&A to exclude the impact of the ocedurenone impairment loss.

  Based on this calculation, it is expected D&A expenses to increase from approx. 5% of revenue (guided for 2025) to >9% by 2034.

• Net Working Capital (NWC)

  As the company gains scale and debottlenecking of the suppIy chain unrolls I expect inventories of certain things such as spare parts or test materials. However, I want to be conservative and assume this gain will be negligible. Hence, the NWC/Revenue ratio will remain unchanged from historical average, 28-29%.

• Acquisitions and M&A

  The acquisition of new molecules or biotech companies conducting related R&D is a common strategy among large pharmaceutical firms, and Novo Nordisk has significantly increased its engagement in this practice in recent years. Additionally, the company has opted to acquire existing manufacturing facilities from other firms, such as Catalent's three sites and a Czech API facility from Moderna, rather than constructing new ones independently.

  Accordingly, I view targeted acquisitions as an integral part of Novo Nordisk’s current business model, and their associated expenses should be subtracted in the same manner as capital expenditures (CapEx) to accurately reflect the true FCFF.

  I will assume that the average expense for acquisitions and M&A will continue at the historical median value of 5.3%, as reported for the period starting in 2018 and onward. I selected the median rather than the average because the Catalent acquisition last year significantly skews the annual amount allocated by the company, with over 28% of revenue dedicated to acquisitions in 2024.

Terminal Value

In my previous valuation, I assumed a terminal growth rate of 3%. I have now lowered it to 2.5%, as, although I believe the company has significant potential to outpace the broader economy, it is not conceptually sound to assume a $300 billion market cap company can indefinitely grow faster than the economy. Such growth would eventually result in the company surpassing the size of the entire economy.

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