BREAKINGVIEWS-Novo Nordisk’s skinny pipeline demands bulky cure

By Aimee Donnellan

DUBLIN, Aug 6 (Reuters Breakingviews) - Novo Nordisk NOVOb.CO is best known for making Wegovy, the obesity treatment which triggers dramatic weight loss. But fierce competition from rival Eli Lilly LLY.N and copycat drugmakers is drawing attention to the $210 billion company’s skinny pipeline. New CEO Maziar Mike Doustdar may need to bulk up on drug development or acquisitions to revive investor appetites.

Enthusiasm about Novo Nordisk’s remedies briefly made it Europe’s largest company by market value. But disillusionment set in last December when its promising weight-loss drug failed to deliver the expected results while patients struggled to tolerate gastric side effects. Since then, $776 billion rival Eli Lilly has munched up market share with new treatments while copycat drugmakers have lured patients with cheaper knockoffs. All this is weighing on the Danish company’s top line. Last week it slashed expectations for revenue growth this year to between 8% and 14%, from the 13% to 21% range it promised back in May.

Doustdar may be minded to mimic his predecessor’s plan of shedding expenses while suing compound drugmakers to defend Novo Nordisk’s share of the key U.S. market. But that approach does not address its bigger ailment: a shortage of exciting new treatments. The company’s most promising drug candidate, CagriSema, may not be superior to Eli Lilly’s remedies, while analysts at UBS reckon its experimental Alzheimer’s treatment has only a 10% chance of success. This is a problem for a company facing pricing pressure and looming competition from rival medications made by the likes of Roche ROG.S and AstraZeneca AZN.L. Its U.S. patent for semaglutide, the active ingredient in both Wegovy and diabetes drug Ozempic, runs out in 2031.

One solution is to splash out on new drugs. Novo Nordisk diverted less than 17% of its revenue to developing new in-house remedies last year, well below AstraZeneca’s 25% outlay and Roche’s 22% spend. Still, investors may not welcome a fatter research budget. If Novo Nordisk spent the same proportion of revenue as AstraZeneca this year its EBITDA would be 20% lower than the $24 billion analysts have pencilled in, according to Breakingviews calculations. Forecasts compiled by Visible Alpha suggest the company’s research spending will remain constant at about 16% of revenue over the next decade – though its growing top line means the absolute budget will expand.

Doustdar may win more support from investors for taking over a rival with drugs that are further along the approval process. For example, Novo Nordisk could swallow a company that is making tablet versions of weight-loss drugs, like $4 billion Viking Therapeutics VKTX.O. Either way, though, he needs to fatten the company’s pipeline. Otherwise its market value will shrink as rapidly as its patients’ waistlines.

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CONTEXT NEWS

Novo Nordisk said on August 6 it will cut costs as the maker of Wegovy battles competition from rival Eli Lilly and copycat versions of its obesity drug, with lower growth expected for its treatments in the second half of 2025.

The Danish company confirmed its forecast for sales growth of between 8% and 14% in 2025, which it had lowered from the previous 13%-21% on July 29. It was the second time in 2025 that the company cut its sales forecast.

Novo has been hit by copycats of its GLP-1 drugs Wegovy for weight loss and Ozempic for diabetes. U.S. law bars pharmacies from replicating approved drugs, but has allowed “compounding”, or mixing of medications, for patients needing custom doses or formulations.

Novo reported second-quarter sales of 76.86 billion Danish crowns ($11.92 billion), up 18% from the same period in 2024.

Sales of Wegovy rose 67% to 19.53 billion Danish crowns in the second quarter from the same period in 2024, the company said.

Second-quarter earnings before interest and taxation (EBIT) stood at 33.45 billion Danish crowns, up 29% from a year ago.

Novo Nordisk shares were down 0.2% at 305.1 Danish crowns by 0800 GMT on August 6.