Novo Nordisk shares slide as GLP-1 growth story hits reality check

​​​The pharmaceutical sector has been one of the standout performers in recent years, driven largely by breakthrough treatments in diabetes and obesity. But Novo Nordisk's latest results serve as a reminder that even the most promising growth stories can hit bumps along the way.

​The Danish company's second-quarter (Q2) numbers have sent shockwaves through the market, with shares tumbling over 20% since the earnings warning. What initially appeared to be a solid set of results has revealed underlying weaknesses that could reshape the obesity treatment landscape.

​The question now is whether this represents a temporary setback or the beginning of a more fundamental shift in the GLP-1 market dynamics. For investors who have ridden the wave of enthusiasm around weight-loss drugs, the recent developments demand a careful reassessment of the sector's prospects.

​Second-quarter results mask deeper concerns

​Novo Nordisk's Q2 numbers came in broadly as expected, with headline figures meeting most analyst forecasts. Revenue growth remained robust, driven by continued demand for the company's diabetes and obesity treatments, particularly Wegovy and Ozempic.

​However, beneath the surface, cracks were beginning to show. GLP-1 drug performance was weaker than anticipated, offset only by surprisingly strong insulin sales. This divergence highlighted the challenges facing Novo's most important growth driver.

​The company's adjusted earnings per share of DKK 5.96 fell short of estimates by 1.6%, a miss that might seem modest but carries significant implications. In a market where expectations have been consistently beaten, even small disappointments can trigger major reassessments.

​Management's commentary during the earnings call revealed mounting pressures from multiple directions. Rising sales and marketing costs, currency headwinds, and intensifying competition all contributed to a more challenging operating environment than previously anticipated.

​Guidance cut signals challenging road ahead

​The real shock came with Novo's decision to slash its 2025 guidance, cutting revenue growth expectations to 8-14% and profit growth to 10-16%. This represents a significant downgrade from previous projections and suggests management sees headwinds persisting well into next year.

​Foreign exchange pressures have played a role, with a stronger Danish krone eating into international sales when translated back to the home currency. But currency moves alone cannot explain the magnitude of the guidance reduction.

​More concerning is the rise in selling, general and administrative costs, which have been climbing faster than revenue growth. This suggests Novo is having to spend more aggressively to maintain market share in an increasingly competitive landscape.

​Analysts are warning that even the reduced guidance may prove optimistic, with some suggesting the targets could still be 200-300 basis points above realistic expectations. This would imply an essentially flat second half, a dramatic change from the growth trajectory investors have become accustomed to.

​Wegovy faces mounting competitive pressure

​The weight-loss drug market, once seen as Novo's exclusive domain, is becoming increasingly crowded. Eli Lilly's competing treatments have gained significant traction, eating into Novo's market share and pricing power.

​July's reimbursement deal with CVS Caremark should provide some support for Wegovy volumes in the US market. The agreement represents a significant win for patient access, potentially opening up treatment to a broader population of Americans struggling with obesity.

​However, the terms of the CVS deal remain undisclosed, leaving investors uncertain about the pricing implications. If Novo had to offer significant discounts to secure the agreement, it could set a concerning precedent for future negotiations with other insurers.

​Compounded versions of GLP-1 drugs continue to pose a threat, despite ongoing litigation efforts. These cheaper alternatives have gained popularity among patients unable to access branded treatments, creating a parallel market that undermines pricing power.

​Leadership change amid strategic pivot

​The appointment of Mike Doustdar as CEO comes at a critical juncture for the company. As a 33-year veteran and former international vice president, Doustdar brings deep institutional knowledge but faces the challenge of navigating unprecedented competitive pressures.

​The timing of this leadership transition is particularly significant, coinciding with Novo's need to reassess its strategic priorities. The company can no longer rely on having the obesity market largely to itself.

​Doustdar's international experience could prove valuable as Novo seeks to expand access to its treatments globally. The company has faced supply constraints that have limited its ability to meet demand, a problem that requires sophisticated supply chain management.

​The new CEO will need to balance aggressive investment in manufacturing capacity with the need to control costs. Getting this equation right will be crucial for maintaining investor confidence while positioning for long-term growth.

​Pipeline reshape offers mixed outlook

​Novo's decision to drop several pipeline obesity assets reflects a more focused approach to drug development. Rather than pursuing multiple shots on goal, the company is concentrating resources on its most promising candidates.

​The Phase 3 semaglutide trial in Alzheimer's treatment represents an intriguing diversification opportunity. If successful, it could open up an entirely new market for the company's existing technology platform, potentially worth billions in additional revenue.

​Wegovy's potential approval for MASH (metabolic dysfunction-associated steatohepatitis) treatment in quarter three (Q3) offers another near-term catalyst. This liver condition affects millions of patients and currently has limited treatment options, representing a significant commercial opportunity.

​However, the pipeline reshaping also reflects the harsh realities of drug development economics. With competition intensifying, Novo can no longer afford to spread its bets across multiple long-shot programmes. The focus must be on assets with the highest probability of commercial success.

​Novo Nordisk share price – technical analysis

​It has been an impressive round trip in Novo Nordisk over the last five years. The relentless losses of the last year have wiped out all the post-2020 gains. For the moment there seems no sign of a low, and any short-term bounce may go the way of similar ones seen this year.

​The run of lower highs and lower lows needs to be brought to an end, and preferably some higher lows need to start appearing on the daily chart before the picture starts to look more encouraging. 

Novo Nordisk chart

​How to invest in Novo Nordisk shares

1. ​Research the company's competitive position in the GLP-1 market and assess the impact of increased competition from rivals like Eli Lilly
2. ​Download IG Invest or open a share dealing account to access international pharmaceutical stocks
3. ​Search for Novo Nordisk in our platform or app to view real-time pricing and company information
4. ​Determine your investment size based on your risk tolerance, considering the stock's recent volatility
5. ​Place your trade, keeping in mind that pharmaceutical stocks can be subject to significant price swings based on clinical trial results and regulatory decisions

​The Novo Nordisk story serves as a reminder that even the most compelling growth narratives can face unexpected challenges. While the long-term obesity treatment opportunity remains substantial, investors must now factor in a more competitive landscape and the potential for continued pressure on growth rates.