TLDR
- Novo Nordisk stock plunged 21.8% on Tuesday after the company slashed its 2025 sales growth forecast to 8%-14% from 13%-21%
- The drugmaker blamed persistent competition from cheap compounded knockoff versions of Wegovy despite regulatory crackdowns
- Operating profit growth expectations were also cut to 10%-16% from the previous 16%-24% forecast
- Mike Doustdar was named as the new CEO, replacing Lars Fruergaard Jørgensen who was ousted in May
- Eli Lilly stock also fell 4.8% as the weight-loss drug market faces a broad reassessment
Novo Nordisk shares crashed on Tuesday, falling 21.8% to $53.98 as the Danish pharmaceutical giant delivered a harsh reality check to investors. The stock, which traded above $125 just a year ago, has now lost more than half its value as the weight-loss drug boom faces serious headwinds.
The company cut its 2025 sales growth forecast to between 8% and 14%, down from expectations of 13% to 21% set in May. This marks the second guidance reduction this year, following similar cuts in May after weak first-quarter results.
Operating profit growth expectations also took a hit, dropping to 10%-16% from the previous 16%-24% forecast. The cuts were more severe than analysts anticipated, who had expected sales to grow 13% to 328 billion Danish krone.
The primary culprit behind the disappointing outlook is competition from compounded versions of Wegovy. These knockoff drugs continue to flood the market despite regulatory efforts to shut them down.
CEO Lars Fruergaard Jørgensen said about one million patients are still using compounded products. This is the same volume seen earlier in the year, contradicting the company’s assumption that mass compounding would cease after FDA intervention.
The Food and Drug Administration told compounders to stop making bulk lots of compounded Wegovy in late May. However, telehealth pharmacies appear to be ignoring these directives, continuing to offer cheaper alternatives to Novo’s branded drugs.
New Leadership Takes Charge
The company announced Mike Doustdar as its new CEO, effective August 7. Doustdar, who previously led international operations, becomes the sixth CEO in Novo’s 102-year history and the first non-Danish leader.
His appointment comes as a surprise to many investors who expected an outsider to tackle the company’s mounting challenges. Doustdar acknowledged the urgency of the situation, promising to focus on improving commercial execution and cutting costs.
The leadership change was planned, with Jørgensen’s departure announced in May. However, the timing puts Doustdar in the hot seat as the company grapples with intensifying competition and market pressures.
Market Reality Sets In
The obesity drug market, which captured investor imagination in late 2022, is facing a reckoning. What once seemed like a guaranteed goldmine is proving far more complex than anticipated.
Novo’s troubles extend beyond compounded competition. The company is also facing pressure from Eli Lilly, whose Zepbound weight-loss drug has been gaining market share.
US prescriptions for Zepbound surpassed those for Wegovy in March, according to recent data. Eli Lilly also reported superior effectiveness in head-to-head trials, further pressuring Novo’s market position.
Eli Lilly shares fell 4.8% on Tuesday, reflecting broader concerns about the weight-loss drug sector. The selloff suggests investors are reassessing the entire market opportunity.
Novo’s cash-pay program for Wegovy has seen fewer patients than expected. The company had hoped more patients would switch to this lower-priced option once compounded drugs disappeared.
The company reported second-quarter earnings of 5.96 Danish krone per share, slightly beating the 5.90 DKK consensus estimate. However, this modest beat was overshadowed by the guidance cuts and competitive pressures.
Board chair Helge Lund called the guidance reduction a matter of “utmost seriousness.” He pointed to strategic investments and commercial initiatives showing positive early indicators.
Doustdar emphasized Novo’s manufacturing capabilities, science, and brand recognition as competitive advantages. He expressed confidence in the company’s ability to capture more market share despite current challenges.
The weight-loss drug market is becoming increasingly crowded, with multiple companies developing competing treatments. This pipeline threatens to further erode Novo’s dominant position in the coming years.
Novo’s American depositary receipts have fallen 45% over the past 12 months as of Monday’s close, reflecting the sustained pressure on the stock.
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