Citi has cut its price target on Danish pharmaceutical company Novo Nordisk from DKK 310 to DKK 296, while maintaining a "Neutral" rating.

The main reason is that Novo Nordisk expects its profit margin to remain broadly stable through 2030, with increased research and development spending limiting any improvement in profitability.

Although Citi is optimistic about the sales outlook for the oral weight-loss drug Wegovy and has raised its near-term revenue and profit forecasts, it has lowered its earnings growth expectations for the company from 2027 to 2030 due to the lack of long-term margin expansion.

Long-term margin pressure leads Citi to cut earnings growth forecasts

At its recent Capital Markets Day (CMD), Novo Nordisk said that, affected by higher R&D investment, it expects its profit margin to remain broadly stable through 2030.

Based on this guidance, Citi has lowered its adjusted operating profit forecasts for Novo Nordisk from 2028 to 2030 by 2% to 4%, and cut its expected average annual earnings per share growth rate for 2027 to 2030 from 12% to 9%.

At the same time, Citi has reduced its target valuation multiple for Novo Nordisk from 15 times 2027 estimated price-to-earnings to 14 times, with the price target accordingly lowered from DKK 310 to DKK 296.

However, Citi's view on the company's near-term operating performance has improved.

Taking into account higher sales expectations for oral Wegovy outside the United States and changes in U.S. prescription volumes for the diabetes drug Ozempic, Citi has raised its adjusted operating profit forecasts for 2026 and 2027 by 2% to 3%, and lifted its adjusted sales forecasts for the same period by 3% and 1%, respectively.

Overseas expansion of oral Wegovy accelerates, peak sales forecast raised to $13 billion

Oral Wegovy is a key reason behind Citi's upward revision to Novo Nordisk's near-term performance forecasts.

At its Capital Markets Day, Novo Nordisk said that, as production capacity improves, it plans to roll out oral Wegovy to at least 20 countries by the end of 2027, covering about two-thirds of the obesity market it currently serves.

The launch performance in the UK market has also strengthened Citi's confidence in the product. Since its launch in July this year, 1 million boxes of oral Wegovy have been distributed in the UK.

Citi has therefore raised its peak sales forecast for the product from $10 billion to $13 billion.

Citi expects oral Wegovy sales to reach DKK 5.3 billion in the upcoming third-quarter earnings report, above the consensus estimate of DKK 4.5 billion, a beat of about 16%.

Citi believes the strong UK launch performance is an important factor driving sales growth.

Third-quarter revenue expected to fall 4% year on year as legacy products come under pressure

Novo Nordisk is scheduled to report third-quarter results on Nov. 4.

Despite the sales growth of oral Wegovy, Citi still expects the company's quarterly revenue to decline year on year.

Specifically, Citi forecasts Novo Nordisk's third-quarter revenue at DKK 73.5 billion, down 4% year on year at constant currency, but still about 1% above the consensus estimate.

The revenue decline is mainly due to several factors: a high year-earlier base: the third quarter of last year included about DKK 3 billion in rebate adjustments and channel stocking gains, which raised the comparison base. Pressure on Ozempic's U.S. business: U.S. prescription volumes and prices continued to decline, with Ozempic prescription volumes falling about 15%. Intensifying generic competition: generic launches in Canada and Brazil are putting pressure on sales of existing products. Price cuts for injectable Wegovy: selling prices for the injectable weight-loss drug Wegovy continued to fall, offsetting some of the revenue growth from oral products.

In addition, Citi noted that existing prescription data have not yet shown a clear sales boost from GLP-1 drugs gaining eligibility for reimbursement under U.S. Medicare.

On profit, Citi expects Novo Nordisk's third-quarter adjusted operating profit to rise 18% year on year at constant currency.

However, this growth mainly stems from about DKK 9 billion in restructuring costs included in the year-earlier period. Excluding the low-base effect from that expense, adjusted operating profit is expected to fall about 15% year on year.

As higher R&D spending weighs on margins, Citi expects the company's third-quarter adjusted operating profit to be broadly in line with the consensus estimate.

On earnings per share, Citi forecasts Novo Nordisk's third-quarter EPS under International Financial Reporting Standards (IFRS) at DKK 4.15, down 8% year on year.

The main reason is an impairment charge after the experimental drug ziltivekimab failed in the ZEUS clinical trial.

Competition intensifies in next-generation weight-loss drugs, long-term growth faces challenges

Although oral Wegovy is expected to deliver better-than-expected sales in the third quarter, Citi believes growth from a single product is not enough to dispel investor concerns about Novo Nordisk's long-term profitability.

On one hand, future pricing trends for injectable Wegovy remain highly uncertain, and price pressure may continue to weigh on the company's overall margin.

On the other hand, several large pharmaceutical companies are advancing development of next-generation weight-loss and metabolic disease drugs, increasing long-term competitive pressure.

Citi specifically mentioned several potential competing products, including Eli Lilly's retatrutide and eloralintide, Roche's enicepatide, Pfizer's MET-097i and AstraZeneca's elecoglipron.

Citi believes that even if oral Wegovy sales exceed expectations, the unclear price outlook for injectable Wegovy, combined with rivals' continued progress on new drug development, may still keep many investors on the sidelines.

Overall, Citi's assessment of Novo Nordisk shows a clear split between the short term and the long term: international expansion of oral Wegovy is expected to support sales and profit performance over the next two years, but higher R&D investment, price cuts on mature products and intensifying competition from new drugs will limit the company's medium- to long-term earnings growth and valuation upside.