Danish drugmaker Novo Nordisk briefly overtook LVMH (LVMH.PA) as Europe’s most valuable listed company in intraday trading on Friday, ending the French luxury group’s 2-1/2 year-long reign at the top. The luxury sector has been battered by growing concerns about the outlook for the Chinese economy, which is critical to demand for high-end goods. Novo, meanwhile, is riding a wave of sky-high demand for its highly effective diabetes and weight-loss drugs Ozempic and Wegovy, which have sent its earnings and shares to record highs.
On the airy top floor of Novo’s headquarters north of Copenhagen, a spherical, skylit building designed to look like an insulin molecule, company execs admit they were caught off guard by the scale of the response to their new obesity drug Wegovy. They say its launch in the U.S. in June 2022 triggered “unprecedented demand” that blew past expectations. “We are still reeling from the impact of this new drug,” says Chief Executive Officer Lars Knudsen, sitting at a desk with a sweeping view of the Danish countryside.
Investors have seized on Wegovy as the latest weapon in the war against rising global obesity. The drug is an injection, delivered via a syringe, that helps patients cut back on calories to lose or maintain their weight and is hailed as a game-changer for the industry. Its demand is so strong that Novo has needed help expanding production capacity fast enough.
Analysts see the potential for the drug to become a blockbuster, with sales expected to reach $100 billion within a decade. The market share will likely be split relatively evenly between Novo and Eli Lilly (LLY.N), the two most prominent players in this new class of obesity medicines. Novo shares are near record highs, highlighting investors’ appreciation for a strategy that has given it a first-mover advantage in the surging market.
The rise of Novo has brought the drugmaker’s total market value to almost $421 billion, nearly twice as much as Denmark’s annual gross domestic product (GDP). It also puts it on par with companies like transport firm DSV – a sign of the massive influx of dollars from its drug-making success into the country.
That influx of cash has also helped boost the Danish economy, as exports have boomed and consumers spend on foreign products to offset weaker local spending. But the rise of Novo has come at a cost, as the soaring demand for Wegovy and Ozempic has pushed up raw materials prices. The higher costs have led to price increases, and Novo has warned of continued periodic shortages in specific markets. But the company has vowed to maintain or even increase its dividend. The share price is up around 7% this year, and investors are optimistic about its prospects for the remainder of 2023. “We’re not seeing a slowdown in growth for this year,” said one fund manager at Fidelity European Fund. “We’re expecting this to continue into the second half.” The fund holds both Novo and LVMH as core holdings.