Novo Nordisk (NVO.US) Poised for Value Reassessment Amid Easing Impact of Compounded Drugs and Imminent Oral Therapy Launch

According to the SmartCom APP, Novo Nordisk (NVO.US), as a European pharmaceutical giant, currently has a market value of approximately $310 billion. Its business focuses on two major areas: diabetes and obesity care, and rare diseases, with a TTM comprehensive revenue of $44 billion. Recently, its stock price has experienced a sharp correction, shrinking by more than 52% from its historical high. This decline is considered one of the steepest adjustments in the company's history.

Despite the pessimistic market sentiment, now may be an appropriate time to examine this significantly undervalued pharmaceutical leader and seize a potential rebound opportunity. This article argues that concerns over pricing pressures in the U.S. market and the CagriSema clinical trial have been overstated. Novo Nordisk is expected to return above $120 within 1-2 years, creating substantial profit potential for growth at a reasonable price (GARP) investors.

Financial Performance Reflects Solid Fundamentals of the Company

Sales in the first quarter of 2025 reached $11.83 billion, a year-on-year increase of 25.85%, basically in line with market expectations. The core product Ozempic maintained steady growth in the diabetes field, while Wegovy showed explosive expansion, with sales in the U.S. market surging by 40% and international markets skyrocketing by 137%.

Currently, only 46 million patients worldwide are receiving treatment, a figure that still has significant room for growth compared to the potential demand. Non-GAAP earnings per share increased by 20.7% year-over-year, slightly lower than the revenue growth rate but still exceeded market expectations by nearly 7%, marking one of the highest beats since 2021. Although management lowered the full-year sales growth guidance to 13%-21%, the market overly focused on this aspect, overlooking the positive variables brought by improvements in the regulatory environment and adjustments in commercial strategy.

The Sustainability of the Expansion of Compound GLP-1 Drugs in the United States

The core concern in the current market focuses on the sustainability of the expansion of U.S. compound GLP-1 drugs. Previously, Wegovy was added to the FDA drug shortage list, leading to compounded semaglutide filling the market gap, with brand drug penetration falling below expectations. However, in February this year, the FDA removed semaglutide from the shortage list. According to U.S. compounding drug regulations, except for a few exceptions, the production and sale of compounded semaglutide are illegal.

Novo Nordisk recently terminated its partnership with Hims & Hers due to violations of regulatory requirements that prohibit the large-scale sale of compounded drugs under personalized pretenses. This move aims to protect patient safety and preserve brand market share. The company simultaneously launched the NovoCare pharmacy platform, offering Wegovy at a monthly price of $499 for cash-paying patients, directly competing with compounded alternatives. Additionally, CVS Health will include Wegovy as the sole GLP-1 obesity drug covered in its national formulary starting July 1, 2025. With stricter regulatory enforcement and commercial measures taking effect, a significant proportion of the over one million patients currently using compounded drugs are expected to transition to the more accessible branded Wegovy by the second half of 2025.

The advantage of the R&D pipeline is the core supporting long-term value.

FDA Accepts Application for Oral Semaglutide in Obesity Treatment; If Approved This Year, This Once-Daily Oral Medication Will Open the Market for Patients Unwilling to Use Injections. More Notably, CagriSema Demonstrated a 22.7% Weight Loss Effect in the REDEFINE-1 Trial While Significantly Reducing Cardiovascular Risk Factors. Physician Feedback Indicates a Low Rate of Discontinuation Due to Gastrointestinal Adverse Reactions, Showing Good Tolerability. In Patient Populations Needing Over 20% Weight Reduction, CagriSema Is Expected to Become a Highly Efficient Option. These Innovative Drugs Will Help Novo Nordisk Compete Against Eli Lilly.(LLY.US)Challenges from competitors, consolidating its leading position in the GLP-1 field.

The current stock price has fully reflected the market's pessimistic expectations.

As of now, the company's forward price-to-earnings (P/E) ratio based on fiscal year 2026 expectations is only 14.44 times, corresponding to an earnings per share (EPS) growth rate of 15.8%. The forward PEG ratio (P/E to Growth) is approximately 0.91 times. According to Damodaran’s industry valuation data, the average FWD PEG ratio for healthcare product companies is 3.23 times, while a PEG below 1 time is generally considered an undervaluation signal. If a 10% premium is applied to the fiscal year 2026 valuation, the implied P/E ratio would drop to 13.12 times, corresponding to a PEG of about 0.48 times. Assuming the PEG recovers to 0.91 times, there could be nearly 90% upside potential in the stock price within 1-2 years. From a technical perspective, after the stock price broke through a key resistance level in April, it may retest previous highs if the catalysts mentioned in this article gradually materialize.

Risk Factors Require Close Attention

The competitive pressure on Eli Lilly's GLP-1 products continues. If Novo Nordisk fails to effectively convert compound drug users into Wegovy customers, the anticipated rebound may not materialize. However, overall, the recent sell-off has overly reflected short-term headwinds, with the market overly focused on the "compound effect" while overlooking the company’s market leadership, trillion-dollar potential demand, operational improvement opportunities, and industry-leading R&D pipeline.

A valuation comparison based on industry conventions shows that the current share price far from reflects its true value. If the strategy is executed properly, Novo Nordisk could very well return to its historical highs.