Novo Nordisk: A global leader in obesity and diabetes therapies

Novo Nordisk is a global leader in diabetes and obesity care, with a strong presence in cardiovascular and rare disease treatments. Its portfolio of GLP-1-based therapies has driven significant growth, positioning the company at the forefront of addressing some of the world’s most pressing health challenges. With a history of high profitability, continuous innovation, and aggressive expansion of production capacity, Novo Nordisk is well-positioned for the future. The question remains: Should this healthcare giant have a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should start by mentioning that at the time of writing this analysis, I do own shares in Novo Nordisk. If you would like to view the stocks in my portfolio or copy my portfolio, you can do so on eToro. Instructions on how to do so can be found here. If you want to purchase shares or fractional shares of Novo Nordisk, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Novo Nordisk is a global healthcare company founded in 1923 in Bagsværd, Denmark, that focuses on the research, development, manufacture, and distribution of pharmaceutical products. The company addresses serious chronic diseases, with a strong emphasis on diabetes and obesity as well as rare conditions. It operates primarily in two segments. The first segment, Diabetes and Obesity Care, provides innovative treatments for diabetes, obesity, cardiovascular conditions, and other emerging therapy areas. This includes advanced delivery systems such as insulin pens, smart insulin pens, and digital tools like an insulin dose guidance application. The second segment focuses on rare diseases, offering specialized treatments for rare blood disorders, rare endocrine disorders, and hormone replacement therapy. Beyond its core pharmaceutical offerings, Novo Nordisk invests in novel treatments and technologies, including curative stem cell-based therapies and digital health solutions, to meet unmet patient needs. The company also engages in strategic collaborations with partners like Aspen Pharmaceuticals, UNICEF, and Valo Health, which help expand its research capabilities and global reach. The moat of Novo Nordisk is largely built on its strong patent portfolio, which provides market exclusivity for its innovations and creates a significant barrier to entry for competitors. The company’s integrated value chain, encompassing everything from research and development to manufacturing and global distribution, ensures high quality and cost efficiency. Furthermore, its unique ownership structure, with the Novo Nordisk Foundation as the controlling shareholder, provides the stability necessary for long-term strategic investments and sustainable growth. Decades of expertise in diabetes care and related fields have also built strong brand recognition and trust, reinforcing its position as a market leader in addressing some of the most pressing global health challenges.

Management

Lars Fruergaard Jørgensen serves as the CEO of Novo Nordisk, a role he has held since 2017 after beginning his career with the company in 1994 and progressing through various key positions. He earned a Master of Science in Finance and Business Administration from the Aarhus School of Business, which has equipped him with a solid foundation in financial and operational management. In addition to his role at Novo Nordisk, he is the President of the European Federation of Pharmaceutical Industries and Associations (EFPIA) and a board member at Danmarks Nationalbank, Denmark’s central bank. Recognized for his understated yet effective leadership, he was named Person of the Year by the Financial Times in 2023, joining the ranks of influential figures such as Bill Gates, Steve Jobs, and Barack Obama. Lars Fruergaard Jørgensen is known for his typically Danish management style that emphasizes transparency and open communication. His “Lars Live” meetings invite employees to engage directly with him, fostering trust and collective problem-solving. He also prioritizes time for reflection in his schedule, ensuring long-term strategic thinking complements his day-to-day responsibilities. Honored as Leader of the Year in 2020, Lars Fruergaard Jørgensen’s balanced approach to listening and decisive action has been instrumental in navigating Novo Nordisk through a rapidly evolving global healthcare landscape.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% each year.  Novo Nordisk has consistently delivered a remarkable ROIC over the past 10 years. Very few companies achieve a level of profitability as high as Novo Nordisk. Over this period, its ROIC has never fallen below 55%, and in seven out of the past ten years, it has exceeded 60%. This sustained performance is driven by the company’s strong market position, which enables significant pricing power, its efficient operations that reduce costs and enhance productivity, and its disciplined capital allocation, ensuring investments are directed toward high-return projects. ROIC declined in 2024 due to substantial investments in production capacity, which is not a concern given the company’s long-term outlook. The consistently high ROIC reinforces Novo Nordisk’s status as a long-term compounder.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. There has been one years with a slight decrease, but it is hardly anything to worry about. Novo Nordisk has grown its equity in nine out of the past ten years, reaching an all-time high in 2024. Not only did Novo Nordisk set a new record in 2024, but it also achieved the largest year-over-year increase in the past decade. Another encouraging sign is that in the last ten years, there have been only two years where the company’s year-over-year equity growth fell below 10%, highlighting its consistent ability to generate long-term value.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Novo Nordisk has generated positive free cash flow every year over the past decade. The company has grown its free cash flow in most years, though there was a decline in 2024. This decline was due to a nearly doubling of capital expenditures, rising from DKK 26 billion in 2023 to DKK 47 billion in 2024. The increase in capital expenditures stemmed from significant investments in expanding production capacity, including the acquisition of three Catalent sites and further expansions of existing facilities. Despite this, Novo Nordisk still generated enough free cash flow to continue its share repurchase program and increase its dividend by 21% compared to 2023, marking the 29th consecutive year of dividend growth. As Novo Nordisk continues expanding its capacity, capital expenditures are expected to rise further to approximately DKK 65 billion in 2025, which may result in another year of lower free cash flow. The increased capital spending has also impacted the levered free cash flow margin, which is now at its lowest level in a decade. However, this is likely a temporary development, and once capital expenditures begin to decline, I expect the margin to return above 30%. The free cash flow yield is also at its lowest level in a decade, which typically suggests that shares are trading at a premium. However, in Novo Nordisk’s case, this is largely driven by elevated capital expenditures rather than a fundamental deterioration in cash flow generation. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of three years. We do this by dividing the total long-term debt by earnings. When analyzing Novo Nordisk's financials, it is evident that the company has 0,83 years of earnings in debt, a figure well below the three-year threshold. Hence, debt is not a concern for investors considering Novo Nordisk. In fact, the company has not had a debt-to-earnings ratio above one year in over two decades and has remained below three years of earnings since 1979. Given this long history of financial discipline, I do not expect debt to become an issue for Novo Nordisk in the future.

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Risks

Patent losses pose a significant risk to Novo Nordisk, as they allow lower-cost generic and biosimilar competitors to enter the market, potentially eroding sales and profitability. The company's ability to maintain market exclusivity for its key products is crucial to its long-term financial performance, as patent protection enables premium pricing without direct competition. Once a patent expires, competitors can introduce generic or biosimilar versions at significantly lower prices, often leading to a rapid decline in sales of the original product as healthcare providers and payers shift toward more affordable alternatives. A recent example is Novo Nordisk’s first-generation GLP-1 diabetes therapy, Victoza, whose patent expired in 2023. By late 2024, Hikma Pharmaceuticals had already launched a generic version in the U.S., swiftly capturing market share due to its lower price. Victoza previously contributed significantly to Novo Nordisk’s revenue, but its financial impact is now expected to decline sharply as generics gain traction. Looking ahead, key Novo Nordisk products such as Ozempic, Rybelsus, and Wegovy remain under U.S. patent protection until 2032. However, in China, these patents expire as early as 2026, exposing the company to earlier competition in a crucial growth market. While Novo Nordisk holds supplementary patents covering manufacturing processes, formulations, and specific uses, these offer only partial protection and do not fully prevent the introduction of competing products because they do not block competitors from producing and selling a similar drug using a different method or formulation once the core active ingredient patent expires. Patent losses are particularly critical for Novo Nordisk due to its reliance on a few blockbuster drugs. GLP-1 receptor agonists like Ozempic and Wegovy have been key drivers of growth, and once these lose exclusivity, the company will need to offset the decline through new product launches, reformulations, or next-generation therapies.

The CMS price negotiations pose a significant risk for Novo Nordisk because they could lead to lower pricing for its key drugs in the U.S. and set a precedent for broader pricing pressure across the healthcare industry. Novo Nordisk’s semaglutide-based products - Ozempic, Rybelsus, and Wegovy - have been selected for the second round of Medicare price negotiations under the Inflation Reduction Act. This means the company will be required to negotiate pricing with the U.S. government for Medicare beneficiaries, with the new prices taking effect in January 2027. Medicare accounts for 30% of Novo Nordisk’s U.S. sales. If CMS lowers the price of Ozempic, Rybelsus, and Wegovy for Medicare patients, Novo Nordisk will see reduced margins in that segment. While 50% of U.S. sales come from commercial insurers, Medicare-negotiated prices often create downward pressure on private sector pricing, as insurers may demand similar discounts. Wegovy, in particular, faces additional uncertainty, as obesity treatments are not universally covered by Medicare today, though this could change in the future. Novo Nordisk has benefited from strong pricing power due to the effectiveness and high demand for its GLP-1 drugs. If the Maximum Fair Price set by CMS is significantly lower than current prices, the company may struggle to maintain premium pricing. While GLP-1 drugs are a newer concern, Novo Nordisk has already faced government-imposed price limits on insulin, another core business segment. Under the Inflation Reduction Act, Medicare beneficiaries' out-of-pocket insulin costs have been capped at $35 per month per prescription since January 1, 2023. This price cap affects Novo Nordisk’s insulin products, such as NovoLog and Levemir, limiting potential revenue growth in the U.S. Though the cap applies only to Medicare, political pressure has increased for similar price controls in the broader market. Novo Nordisk has responded by voluntarily lowering some insulin prices in the U.S. to match the $35 cap, further compressing insulin margins.

Laws and regulations pose a significant risk for Novo Nordisk, particularly due to the evolving regulatory landscape in the U.S., which is the world's largest healthcare market and a key revenue driver for the company. The U.S. healthcare industry is highly regulated and subject to frequent changes, often influenced by political decisions, legislative reforms, and regulatory actions at both federal and state levels. Future reforms could impact Novo Nordisk’s ability to set prices, expand its market presence, and pursue strategic initiatives such as mergers and acquisitions. Regulatory scrutiny over mergers and acquisitions also presents challenges. Like many pharmaceutical companies, Novo Nordisk relies on acquisitions to secure new drug candidates and address patent cliffs when exclusivity for key products expires. However, tighter antitrust enforcement and regulatory barriers could make expansion through acquisitions more difficult, limiting the company’s ability to sustain long-term growth. If Novo Nordisk is unable to acquire or develop new high-margin drugs to replace aging products, its revenue growth and profitability could be affected. Outside the U.S., regulatory complexity is increasing in other key markets. Several governments are implementing changes to their pharmaceutical frameworks, creating further uncertainty for Novo Nordisk’s operations. More stringent drug approval processes, pricing controls, and reimbursement restrictions could slow the company’s ability to bring new treatments to market or limit its pricing flexibility, reducing profitability. Countries with nationalized healthcare systems, such as those in Europe and parts of Asia, often enforce strict cost-containment measures, which could place additional pressure on Novo Nordisk’s margins.

Reasons to invest

Novo Nordisk’s portfolio of drugs presents a compelling reason to invest in the company due to its leadership in diabetes and obesity care, the growing demand for GLP-1-based therapies, and its expansion into cardiovascular and rare disease treatments. Positioned at the forefront of addressing major global health challenges, Novo Nordisk continues to strengthen its market presence with a robust portfolio and increasing penetration across key therapeutic areas. Diabetes and obesity are rising global health concerns. More than half of the world’s population is projected to have obesity by 2035, and diabetes cases are expected to more than double by 2050. These trends are driving unprecedented demand for Novo Nordisk’s GLP-1-based medicines, which improve blood sugar control, support weight management, and provide broader cardiometabolic benefits. Over the past four years, Novo Nordisk has quadrupled the number of patients reached with these treatments, now holding a 63% market share in the GLP-1 segment. The company remains the global leader in diabetes care, with a sustained value market share of 33,7%. Ozempic continues to be the world’s best-selling diabetes medication, driven by its strong efficacy in blood sugar control, weight reduction, and additional benefits such as kidney protection and improved cardiovascular outcomes. Meanwhile, obesity treatment has become an increasingly important growth driver. Wegovy sales surged by 86% globally in 2024, fueled by strong volume growth in North America and a more than doubling of sales in International Operations. The total market for anti-obesity medications in the U.S. expanded by 160% last year, and Novo Nordisk remains at the forefront of this transformation. Novo Nordisk’s expansion into cardiovascular disease further strengthens its position, with its therapies demonstrating significant benefits in reducing cardiovascular risks associated with obesity and diabetes. Additionally, the company is investing in rare diseases, developing treatments for rare endocrine and blood disorders, further diversifying its portfolio and securing additional long-term growth opportunities.

Novo Nordisk’s pipeline is a strong reason to invest in the company, as it reflects a continuous commitment to innovation, the expansion of treatment options, and the reinforcement of its leadership in diabetes, obesity, cardiovascular disease, and rare conditions. The company’s research and development efforts target large and underserved markets, with a growing portfolio of next-generation treatments that have the potential to drive long-term growth. Novo Nordisk is at the forefront of obesity treatment, a market with significant growth potential as more than one billion people worldwide are affected by obesity. The company has made substantial progress with CagriSema, a combination of cagrilintide and semaglutide that has demonstrated a high percentage of weight loss, making it one of the most effective obesity treatments in development. Novo Nordisk is also advancing amycretin, a novel GLP-1 and amylin receptor agonist that has shown promising weight-loss potential in early trials. Preliminary data indicate weight reductions of up to 22% over 36 weeks, suggesting it could offer an additional treatment option with a differentiated mechanism of action. In diabetes, Novo Nordisk continues to drive innovation with Awiqli, the world’s first once-weekly basal insulin, which has been launched in select markets and is expected to provide greater convenience for patients. These advancements align with the company’s broader strategy of improving diabetes care, particularly as the number of people with the disease is projected to exceed 1,3 billion by 2050. Novo Nordisk is also expanding its presence in cardiovascular disease, an area with significant unmet need. The company’s GLP-1-based therapies, including Ozempic and Wegovy, have already demonstrated cardiovascular benefits, reducing the risk of major adverse cardiac events. Additionally, Novo Nordisk is developing ziltivekimab, an IL-6 inhibitor targeting inflammation in cardiovascular disease, which is currently in Phase III trials. If approved, this drug could become a first-in-class therapy for high-risk cardiovascular patients and further solidify Novo Nordisk’s leadership in the cardiometabolic space.

Expanding production capacity is another reason to invest in Novo Nordisk, as it enables the company to meet surging demand for its GLP-1-based treatments, solidify its market leadership, and ensure long-term revenue growth. Over the past few years, Novo Nordisk has faced capacity constraints due to the rapid adoption of its diabetes and obesity treatments, leading to shortages that limited patient access. To address this challenge, the company has significantly ramped up investments in manufacturing infrastructure to support continued growth and prevent future supply issues. Novo Nordisk has undertaken one of the most aggressive capacity expansion efforts in its history through capital expenditures and acquisitions. The acquisition of three fill-finish sites from Catalent represents a major step in scaling production, increasing Novo Nordisk’s global manufacturing network from 11 to 14 sites. These sites are expected to gradually increase market supply starting in 2026, allowing the company to reach significantly more patients in the years ahead. In parallel, Novo Nordisk is expanding its existing production facilities in key markets, ensuring it can keep up with rising demand across multiple regions. Novo Nordisk's capacity expansion is particularly important given its dominant position in the GLP-1 market. The company currently serves nearly two-thirds of all GLP-1 patients worldwide, and over the past three years, it has nearly tripled its GLP-1 patient reach. In 2024 alone, Novo Nordisk expanded patient access to its treatments by almost four million people, more than any competitor in the market. The continued expansion of its production footprint will allow it to maintain this momentum and further solidify its market leadership. Supply constraints have been one of the few limiting factors on Novo Nordisk’s growth. The shortage of its obesity and diabetes treatments allowed compounding pharmacies to gain traction by offering alternative versions of semaglutide. While Novo Nordisk has taken legal action against certain compounders, the most effective way to eliminate this competitive threat is by ensuring a stable and sufficient supply of its own products.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of DKK 22,63, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 15,3% in the next five years. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Novo Nordisk's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 678,90. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Novo Nordisk at a price of DKK 339,45 (or lower obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 121.000, and capital expenditures were 47.164. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 33.015 in our calculations. The tax provision was 26.203. We have 4.441 outstanding shares. Hence, the calculation will be as follows: (121.000 – 33.015 + 26.203) / 4.441 x 10 = DKK 257,12 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Nordisk's free cash flow per share at DKK 16,62 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 262,36.

Conclusion

I believe that Novo Nordisk is a great company with excellent management. It has consistently delivered a high return on invested capital (ROIC), which I highly appreciate. Historically, the company has generated strong free cash flow and maintained a high levered free cash flow margin. However, in 2024, free cash flow was affected due to significant capital expenditures. Patent losses pose a risk by allowing lower-cost generics and biosimilars to enter the market, eroding pricing power and profitability. As key patents expire, Novo Nordisk must innovate to offset future revenue declines. CMS price negotiations present another challenge, potentially lowering U.S. prices for key drugs like Ozempic, Rybelsus, and Wegovy, reducing margins, and setting a precedent for broader pricing pressure. With Medicare accounting for 30% of U.S. sales and private insurers often following government pricing trends, the company may face long-term revenue challenges. Regulatory risks are also a concern, as evolving laws could restrict pricing, slow drug approvals, and limit growth through tighter M&A scrutiny, particularly in the U.S. and other key markets. Novo Nordisk’s portfolio remains a key strength, leading in diabetes and obesity care while expanding into cardiovascular and rare disease treatments. With strong demand for its GLP-1-based therapies and a dominant market share, the company is well-positioned for long-term growth. Its pipeline further reinforces this, with promising next-generation treatments like CagriSema, amycretin, and Awiqli, as well as advancements in cardiovascular therapies targeting large and underserved markets. Additionally, Novo Nordisk’s aggressive expansion of production capacity ensures it can meet rising demand, strengthen its market leadership, and drive sustainable revenue growth. I believe that Novo Nordisk is a fantastic company operating in a market that will continue to expand. While other companies are focusing on obesity drugs, Novo Nordisk (along with Eli Lilly) remains far ahead. I believe that buying Novo Nordisk shares below the intrinsic value of the margin of safety price at DKK 678 will be a strong long-term investment.

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