Novo Nordisk (NYSE:NVO) saw a substantial decline in its stock price on Wednesday, with shares dropping as much as 7.7% in early trading. The downturn followed the company’s announcement of lower-than-anticipated quarterly sales for its highly successful weight-loss drug, Wegovy. This dip in sales prompted the company to adjust its full-year profit forecast downwards, raising concerns among investors about the growing competition from Eli Lilly (NYSE:LLY) and the trajectory of Novo Nordisk’s share price.

Wegovy Sales Fall Short of Expectations

The primary driver behind the drop in Novo Nordisk shares is the underperformance of Wegovy, the company’s highly successful weight-loss drug. Sales of Wegovy rose 53% in the second quarter, reaching 11.66 billion Danish crowns. However, this figure fell short of the 13.54 billion crowns anticipated by analysts. The shortfall has raised anxieties that Novo Nordisk’s dominance in the burgeoning obesity drug market could be at risk, especially as the company faces increasing competition from Eli Lilly’s recently launched obesity treatment, Zepbound.

The company’s Chief Financial Officer, Karsten Munk Knudsen, acknowledged these concerns in an interview, stating that the market’s reaction was not surprising given the high expectations surrounding Wegovy. Despite this, the CFO played down the potential impact of competition on the drug’s sales, emphasizing that the company’s long-term outlook remains strong.

Profit Outlook and Market Reactions

Novo Nordisk also reported a lower-than-expected second-quarter profit, adding to investor concerns. Operating profit for the quarter climbed 8% at constant exchange rates to 25.9 billion Danish crowns ($3.8 billion), but this was below the 27.3 billion crowns predicted by analysts. This weaker-than-anticipated profit, combined with the miss on Wegovy sales, has prompted the company to lower its operating profit growth forecast for the full year. Novo Nordisk now anticipates operating profit growth of between 20% and 28% in local currencies, down from its previous forecast of 22% to 30%.

This adjustment in profit outlook has raised further questions about the sustainability of Novo Nordisk’s recent surge in share price, which has seen a significant rise of around 230% since June 2021. The company’s shares are now among the biggest fallers on the broader STOXX 600, approaching their February lows.

Addressing Supply Chain Challenges

One of the key obstacles facing Novo Nordisk is its ability to ramp up production of Wegovy to meet surging demand. The company has been investing heavily in expanding its manufacturing capacity, but supply chain issues have persisted. For instance, the lowest dose of Wegovy remains in shortage in the U.S. market, according to the U.S. Food and Drug Administration.

This shortage has forced Novo Nordisk to restrict supplies of the starter dose in the U.S. to ensure that patients who begin treatment can continue.

Despite these challenges, Novo Nordisk raised its sales growth outlook for the year, now expecting sales to grow between 22% and 28% in local currencies, up from its previous forecast of 19% to 27%. This increase reflects the company’s confidence in its ability to boost production and meet the growing demand for Wegovy.

Competitive Landscape

The obesity drug market is becoming increasingly competitive, with Eli Lilly emerging as a formidable rival. Lilly’s Zepbound, which was launched in the U.S. last December, has quickly gained traction, and the company is now competing with Novo Nordisk in several markets, including the U.S., Britain, and Germany. The U.S. market, where over 70% of adults are obese or overweight, remains the most lucrative battleground for these two pharmaceutical giants.

Novo Nordisk’s ability to maintain its lead in this market will be closely watched by investors, especially as the company continues to expand its product offerings and address supply chain issues. The company recently withdrew its submission to U.S. and European regulators for approval of Wegovy to treat heart failure and kidney disease, citing the need for additional data. Novo Nordisk plans to resubmit its application in early 2025.

Conclusion

The recent slide in Novo Nordisk shares highlights the challenges facing the company as it navigates a highly competitive and rapidly evolving market. While the miss on Wegovy sales has raised concerns, the company’s efforts to ramp up production and expand its product portfolio suggest that it is well-positioned to maintain its leadership in the obesity drug market. Investors will be closely monitoring Novo Nordisk’s performance in the coming quarters as it continues to compete with Eli Lilly and other rivals in this critical market.