Novo Nordisk Shares Post Worst Ever Week as Optimism Wanes
The shares have plunged 32% this week after the maker of Ozempic and Wegovy cut its forecasts for the year and named a company insider as its new chief executive officer. The stock was also hit on Friday after US President Donald Trump demanded that pharmaceutical companies lower American drug prices.
That's taken Novo's market capitalization to the equivalent of $213 billion — below companies including Nestle SA and AstraZeneca Plc. The Danish firm dropped out of Europe's top 10 most valuable stocks on Friday morning, before regaining the final slot in that list later in the day.
'We've long been calling Novo a 'show me' story,' Barclays Plc analyst Emily Field wrote in a note this week. But with Novo having a hard time competing with cheaper, copycat versions of its medicines, and a new drug pipeline that lags behind rivals, 'we struggle to see what will get investors to return' to the story, Field wrote, downgrading the stock to equal-weight from overweight.
Novo's warning on Tuesday followed a tumultuous year that's seen the shares plunge 70% from last summer's record high. Issues have included disappointing clinical trial results for experimental drugs, mounting competition from Eli Lilly & Co. and the ouster of its former CEO. Novo named company veteran Maziar Mike Doustdar as its new leader this week, 'but this won't be an easy fix,' warned Barclays' Field. Novo is due to report second-quarter results on Wednesday.
One area that has been a particular headache for Novo is competition from cheaper copycat options for US patients. Compounding pharmacies are allowed to make and sell cheaper copies of a medicine when brand-name drugs are in short supply, and although they lost this permission this year, it remains an issue. Novo blamed its guidance cut on unrepentant compounders and broader competition.
Many investors and analysts were caught off guard by the warning, with the mood in June being mainly one of optimism that a turnaround was starting. On Monday, nearly two-thirds of analysts tracked by Bloomberg rated the stock a buy or equivalent. But caution is starting to seep in, with less than half keeping their buy recommendations as of Friday's market close.
Read: Novo Nordisk Shares Are Now Recovering from Peak Pessimism
'We got our call on Novo wrong,' said Rajesh Kumar, an analyst at HSBC. 'Our assumption that with FDA's ban on compounding, Novo might regain market share has not played out,' he wrote in a note on Thursday, cutting the stock to hold from buy.
Still, one investor sees similarities between Novo's current situation and another upheaval for the drugmaker in 2016 when it was better known as the world's biggest maker of insulin. Will James, a fund manager at Guinness Global Investors, notes that back then, the company had its competitive position questioned. The guidance was cut and the CEO replaced.
'The share price fell and then recovered aggressively as Novo refocused its innovation and commercial efforts,' James said in an email. 'It is now undoubtedly a bigger job for the new CEO with a sizeable mountain to climb to regain and grow market share and rebuild trust with investors.'
--With assistance from Michael Msika, Sagarika Jaisinghani and Blaise Robinson.
More stories like this are available on bloomberg.com
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