Disappointing Earnings Report
Novo Nordisk, Europe’s largest pharmaceutical company, has missed earnings expectations in the second quarter due to growing competition and increased costs from capacity expansions. The company’s shares fell by 7% at market open following a disappointing earnings report.
Increased Competition and Rising Costs
The company’s operating profit forecast for 2024 has been trimmed, despite an upgrade in net sales. This suggests that rising supply may have increased price pressure, while substantial investment in new plants has impacted its profit margin. Novo Nordisk’s research and development costs jumped by 126% at constant exchange rates compared to last year, primarily due to more late-stage clinical trials and the impairment loss from kidney disease drug ocedurenone.
Growing Competition and Capacity Expansion
The company’s growth has been driven by diabetes and obesity care as well as insulin sales. However, growing competition from US rival Eli Lilly may have been affecting Novo Nordisk’s market share. Eli Lilly’s weight-loss drug Zepbound poses the biggest threat to Novo Nordisk’s popular weight-loss drug Wegovy. To maintain market share, Novo Nordisk has urgently expanded its capacity to meet demand, but this investment has affected its profitability.
Earnings Outlook Trimmed
Novo Nordisk has trimmed its operating profit growth forecast to between 20% and 28%, down from the 22% to 30% predicted in the first quarter. The company’s CEO said that it is pleased with the sales growth in the first half of 2024, which has enabled it to raise the outlook for the full year. However, the company’s gross margin for the second quarter was 84.9%, compared with 85.5% in 2023, due to ongoing capacity expansions.
Future Outlook
Despite the challenges, Novo Nordisk remains optimistic about its future prospects. The company has slightly upgraded its outlook for 2024, now expecting net sales to grow between 22% and 28%, compared to the previously projected range of 19% to 27%. The company will continue to focus on expanding its capacity and investing in new products to maintain its market share and drive growth.
SOURCE: Ref Image from Saxo Bank
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