Novo Nordisk missed earnings expectations in the second quarter due to growing competition and increased costs from capacity expansions. The company also downgraded its profit outlook for 2024.
Europe’s largest company, Novo Nordisk, saw its shares fall by 7% at market open following a disappointing second-quarter earnings report. The Danish pharmaceutical firm has trimmed its operating profit forecast for 2024, despite an upgrade in net sales. This suggests that rising supply may have increased price pressure, while substantial investment in new plants has impacted its profit margin.
Numbers
For the second quarter, Novo Nordisk reported revenue of 68.06 billion Danish Kroner (€9.12bn), a 25% increase from last year at constant exchange rates (CER), but it fell short of the expected 26% year-on-year rise. The net profit was DKK 20.05bn (€2.69bn), representing 3% growth from the same quarter last year, also below the expected DKK 21.38bn.
Novo Nordisk has also slightly upgraded its outlook for 2024, now expecting net sales to grow between 22% and 28%, compared to the previously projected range of 19% to 27%.
CEO Lars Fruergaard Jørgensen said: “We are pleased with the sales growth in the first half of 2024, which has enabled us to raise the outlook for the full year.” However, the firm has trimmed its operating profit growth forecast to between 20% and 28%, down from the 22% to 30% predicted in the first quarter.
In its earnings statement, Novo Nordisk said: “Operating profit is impacted by the impairment loss related to ocedurenone of DKK 5.7bn (€0.76bn). Sales growth has resulted in periodic supply constraints and related drug shortage notifications across a number of products and geographies.”
Novo’s research and development costs jumped by 126% at CER compared to last year. This increase was primarily due to more late-stage clinical trials and the impairment loss from kidney disease drug ocedurenone. In June, Novo Nordisk announced that the acquired drug had failed to meet its primary endpoint.
Intensifying competition
Novo Nordisk stated that the 25% increase in net sales was driven by diabetes and obesity care as well as insulin sales. GLP-1 diabetes sales increased by 32% year-on-year, up from 30% in the previous quarter. However, obesity care sales rose by 34% compared to a year ago, slowing from a 41% increase in the first quarter. Sales of the diabetes treatment Ozempic and the popular weight-loss drug Wegovy rose by 30% and 53%, respectively.
Growing competition from its US rival Eli Lilly may have been affecting Novo Nordisk’s market share. Eli Lilly’s weight-loss drug Zepbound poses the biggest threat to Novo Nordisk. Both Wegovy and Zepbound are in short supply, and analysts have been closely monitoring any supply updates from both companies. Last week, the US Food and Drug Administration (FDA) updated the shortage list, indicating that all doses of Eli Lilly’s Zepbound are now available, while three doses of Wegovy remain in limited supply.
Rising costs due to capacity expansion
Demand for Novo Nordisk’s Wegovy and Ozempic has been outpacing supply, prompting the Danish drugmaker to urgently expand its capacity to maintain market share. In June, Novo Nordisk announced a $4.1bn (€3.74bn) investment to expand its US manufacturing capacity with a new plant in Clayton, North Carolina, dedicated to producing high-demand weight-loss drugs like Wegovy and Ozempic.
However, this investment in capacity expansion has affected its profitability. The gross margin for the second quarter was 84.9%, compared with 85.5% in 2023. Novo Nordisk attributed the decrease to ongoing capacity expansions. Additionally, sales and distribution costs increased by 4%, primarily driven by promotional activities for Wegovy in North America and the promotion of weight-loss drugs in international markets.
