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Investing.com - Novo Nordisk (CSE:NOVOb) faces a "challenging" operating backdrop as competition in the U.S. from compounded versions of its blockbuster obesity drugs shows few signs of fading away, analysts at UBS said in a note downgrading their outlook for the once high-flying Danish pharmaceutical giant.
UBS downgraded its rating of Novo to "neutral" from "buy" and lowered its 12-month price target to 340 Danish krone from 600 Danish krone. Copenhagen-listed shares in Novo, which have slumped by more than 51% so far this year, were mostly unchanged in mid-morning trading on Tuesday.
Last week, Novo cut its annual sales forecast and blamed weaker U.S. demand for its GLP-1 drugs in part on the widespread availability of compounded alternatives. It also stepped up legal pressure on platforms that sells compounded -- or copycat -- versions, calling them unlawful and unsafe.
However, the UBS strategists led by Matthew Weston said their research has indicated that GLP-1 compounders are likely to remain in the United States, potentially limiting "cash-pay uptake" for Novo in the region -- its largest market -- and creating uncertainty around the trajectory of the firm’s Wegovy treatment.
Launched in June 2021, Wegovy catapulted Novo’s sales, helping it temporarily become Europe’s most valuable listed firm. So-called GLP-1 drugs like Wegovy aim to slow digestion and help people feel fuller. While clinical trials have suggested that they can result in body weight loss of 15% to 20%, critics have voiced worries over gastrointestinal side effects.
Sales at Novo are now seen expanding by 6% in the second half, down from 18% in the opening six months of 2025, due to the company also losing market share to rival Eli Lilly (NYSE:LLY), the UBS analysts estimated.
"[W]e do not see what catalyses growth despite the theoretically very sizeable unmet need in obesity.
They added that demand has "plateaued early despite strong brand awareness" for Novo’s Ozempic, which uses the same active ingredient as Wegovy but is used to treat Type-2 diabetes rather than weight loss. This suggests that Mounjaro, the Ozempic competitor made by Lilly, has received a "much stronger reception" from doctors as well, the analysts said.
Volumes could receive a lift from President Donald Trump’s proposal for reimbursals for GLP-1 obesity medications prescribed under Medicare, the U.S. health insurance program for Americans aged 65 and over or with certain disabilities, they said.
But Trump’s move last week to send out letters to more than a dozen drug companies, including Novo, demanding that they slash drug prices in the U.S. presents another possible headwind, the analysts flagged.