Would you be surprised to learn that Danish pharmaceutical company Novo Nordisk (NVO 0.84%) is one of the most valuable businesses in the world?
If you're unfamiliar with the company, you wouldn't be the first. You may, however, recognize the names of some of its flagship diabetes medications such as Ozempic, Wegovy, and Rybelsus, which double as weight-loss treatments. The rising popularity of weight-management treatments helped fuel much of Novo Nordisk's growth over the last year -- sending the stock up more than 50% in 2023.
As of this writing, Novo Nordisk's market cap is $468 billion, making it larger than Walmart, ExxonMobil, and Johnson & Johnson, just to name a few.
With such strong momentum fueling the company, investors might be wondering if the coveted $1 trillion club is within reach. While the stock has certainly rewarded shareholders with generous returns during the past year, the long-term picture is much more important.
Let's break down Novo Nordisk's business, and more importantly, what its future could hold.
How big are Ozempic and Wegovy?
Novo Nordisk's financial results through the first nine months of 2023 were impressive (fourth-quarter results are set to release Jan. 31). Total revenue soared 33% year over year through Sept. 30, with the majority stemming from North America. In particular, sales of products fused in obesity treatment rocketed 174% year over year in the first nine months of 2023. Much of this stems from the blockbuster success of Wegovy, which grew 467% just in the U.S.
Furthermore, sales of diabetes medications have also been off the charts. Glucagon-like peptide-1 (GLP-1) treatments Ozempic and Rybelsus have been meaningful contributions for Novo Nordisk. In fact, the success of these drugs has helped the company lock up nearly 60% of the GLP-1 market.
It's safe to say that Novo Nordisk has solid footing within the diabetes and obesity markets. Moreover, with some on Wall Street estimating the total addressable market to reach $200 billion by 2030, the company's longer-term prospects look encouraging. However, if investors are forecasting its valuation to nearly double by the end of the decade, I think Novo Nordisk will need to show some additional growth streams.
Image source: Getty Images.
What is Novo Nordisk doing outside of diabetes and obesity?
Aside from diabetes and obesity, Novo Nordisk operates across other medical areas including hemophilia, growth disorders, and hormone replacement therapy. Unfortunately, through September, sales in the company's rare disease division declined by 18% year over year. Some of this deceleration was attributed to reductions in manufacturing output.
I'm not too worried about Novo Nordisk's rare disease segment. Clearly, the tailwinds fueling diabetes and obesity medications are more than making up for the company's slowdown in other areas. Instead, as an investor in Novo Nordisk, I'm more curious about the company's future road map.
Back in October, the company acquired a hypertension drug called ocedurenone from KBP Biosciences. Per its press release, Novo Nordisk may seek to use ocedurenone for kidney disease and cardiovascular applications.
The potential for ocedurenone and its various applications could open up end-markets worth tens of billions of dollars. For now, Novo Nordisk is still undergoing phase 3 trials for ocedurenone, so a formal approval timeline from the Food and Drug Administration (FDA) is not yet known.
Can Novo Nordisk become a $1 trillion company?
In 2022, Novo Nordisk generated roughly $25 billion in sales. According to management, the company's total revenue for 2023 is expected to increase between 32% and 38% year over year. Using the midpoint of 35% annual growth, Novo Nordisk's total revenue would be approximately $33.8 billion. Furthermore, Wall Street analysts are calling for an additional 20% in growth this year, suggesting Novo Nordisk could reach about $40 billion in sales.
Based on the company's long-term price-to-sales (P/S) multiple of 15.2, Novo Nordisk would only need to increase revenue at an average rate of 10% per year through 2030 to reach a trillion-dollar valuation.
It's important to keep in mind that the above analysis is merely an exercise with numbers. Anything can happen over the next several years. For example, there could be setbacks with both existing and new treatments as more side effects become known.
Moreover, while increased competition -- particularly from Eli Lilly's Mounjaro and Zepbound -- could be viewed as a positive as the diabetes and obesity markets grow, Novo Nordisk still needs to expand beyond these use cases to be perceived as a more prolific healthcare business.
Although I don't expect the company to generate high-double-digit percentage sales growth forever, I am bullish that Novo Nordisk's top line will report more than 10% annual increases for the next several years. Furthermore, given the potential of ocedurenone and its various applications, I think Novo Nordisk can handily eclipse a $1 trillion valuation by 2030.
