BREAKINGVIEWS-Novo Nordisk's illness offers painful lessons

DUBLIN, March 3 (Reuters Breakingviews) - In June 2024, Novo Nordisk (NVO) was the most valuable company in Europe, worth almost $660 billion. Its two weight loss drugs – Ozempic and Wegovy – had become cultural and medical phenomena. The company was even seismic enough to distort Denmark's national economic accounts.

Yet almost two years and $500 billion of lost market capitalisation later, the group is now on the sickbed. It's not even in the top 10 largest European companies by equity value. And within its sector, $166 billion Novo Nordisk has become an also-ran compared to rival Eli Lilly (LLY), whose market value has surged to nearly $1 trillion after the U.S. group flooded pharmacies with obesity drugs that offered superior weight loss benefits. The value collapse contains important lessons.

Big Pharma groups resemble venture capitalists. Drugmakers invest billions of dollars into research and development with the expectation that just one in 10 drugs will succeed. It's all worthwhile when a bonanza lands. By the time a successful drug launches, about 10 years of patent protection typically remain, during which time the company can charge high prices to recoup R&D costs and deliver cash to shareholders. Hit remedies can utterly transform companies, just as so-called GLP-1 weight-loss treatments initially did for Novo Nordisk.

In 2022, the year after higher-dose drug Wegovy launched and four years after Ozempic first hit the market, Novo's sales of obesity and diabetes medications soared to $23 billion. The following year they ballooned by nearly 40%, followed by another 26% rise in 2024.

Novo got some things right early. In 2018, then-CEO Lars Fruergaard Jorgensen recognised that Ozempic’s benefits risked getting lost among rival GLP-1 drugs. The moment called for some clever marketing, which eventually culminated in a TV campaign featuring the riff "Oh, oh, oh Ozempic" to the tune of Pilot's 1974 hit "Magic." The jingle spread across social media and arguably became one of the most successful pharma marketing campaigns ever.

Later, Novo erred. To capitalise on one of the most successful drug launches of all time, it needed to make a colossal investment in its supply chains. The company debated dramatically scaling up production, according to a person familiar with the matter, especially in the U.S. But in the end it didn't, partly because Novo initially thought Ozempic may only be marginally better than its existing GLP-1 drug Saxenda. Executives worried about ending up with excess inventory. Instead, the opposite happened.

Ozempic flew off the shelves, leading to shortages by 2022. That opened the door to online pharmacies selling knock-off versions of Novo’s GLP-1 drugs for as little as $250 a month, compared with Novo's over $1,000 prescription charge. Worse, the shortages gave Eli Lilly's competing drug Mounjaro a nice opening when it launched in 2022. Doctors prescribed Mounjaro when they couldn't access Ozempic or Wegovy - then kept prescribing the Eli Lilly treatment even when Novo's were available.

The lesson is that bosses should give promising products a chance, or at least prepare their supply chains for the possibility of success. Novo's largest shareholder eventually spent $17 billion on drug manufacturer Catalent in 2024, but the damage was done. With hindsight, it's obvious that Ozempic would be in high demand: patients lost around 15% of their bodyweight on the highest dose of semaglutide - the secret sauce of Ozempic and Wegovy, compared with just 5% under predecessor treatment Saxenda.

Another major mistake was underestimating Eli Lilly. The two firms coexisted for decades in the insulin market, where they managed to avoid price wars. But GLP-1s were different. Eli Lilly was slower off the mark, which counterintuitively proved beneficial because it could learn from Novo's errors. The American company focused on its home market to avoid supply chain problems, and quickly began improving its products. That included launching a consumer-focused website and offering a wider range of ways for patients to administer the drugs themselves.

The overriding theme is that Eli Lilly CEO David Ricks recognised that obesity would be a consumer-driven market, meaning patients might pay out of pocket rather than through insurance. Novo, meanwhile, spent heavily on drug trials to prove medical benefits beyond weight loss, hoping to convince insurers to cover the prescription costs. Seven years on, the evidence firmly suggests that Eli Lilly called it right. Sales of the U.S. firm's GLP-1 products are vastly out-stripping Novo's. As of mid-January 2026, Eli Lilly's Zepbound is the number one obesity medication in the U.S.

Novo essentially lost its early lead by failing to invest enough in its supply chain, innovating too slowly, and also being slow to recognise the importance of the consumer market. The fall from grace has been dramatic. Its stock has essentially lost all the gains dating to its 2021 launch of Wegovy. It is now worth under 11 times forward earnings, which compares with an industry average valuation multiple of 19 and Eli Lilly's rating of nearly 29.

Novo’s former bosses could argue that it would have been impossible to prepare sufficiently for the GLP-1 boom. It's true that few analysts foresaw what was coming. But there’s no excuse for how poorly Novo is now set up for the future. The Danish group made 94% of its revenue from diabetes and obesity drugs in 2025. The lack of diversification is now a problem given that Eli Lilly’s drugs are so much more popular, while rivals like AstraZeneca AZN.L, Pfizer PFE.N and Roche ROG.S are looking to muscle in on the market. By 2031, Novo will lose patent protection on Ozempic and Wegovy in the U.S., meaning sales of those drugs may trail off quickly.

New CEO Mike Doustdar is looking to repair the company's fortunes. In January, he introduced the tablet form of Wegovy, which is doing well. He is scouring the globe for takeover targets focused on problems related to obesity and diabetes, like fatty liver disease. "Mike has a checkbook and he's been given the authority to spend on what makes sense," Ambre James Brown, head of global media at Novo Nordisk told Breakingviews. Separately, a person familiar with the matter told Breakingviews that Novo bosses spent two days last week discussing the future, including M&A, at a management meeting. Big changes may be coming. The fact that they're necessary testifies to how much Novo has scuppered its lead.

Follow Aimee Donnellan on LinkedIn.

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