Novo Nordisk job cuts a necessary reset after hypergrowth, analysts say
Novo Nordisk ‘s move to cut 9,000 jobs could mark the first step in a critical overhaul of the ailing Wegovy weight-loss drug maker, according to analysts. The pharmaceutical giant on Wednesday announced plans to trim 11.5% of its workforce, largely in its Danish home market. It marks the first major shake-up under new CEO and President Maziar Mike Doustdar, who took the helm in August. Novo shares climbed over 4% in morning trade, paring earlier losses. “We see today’s move as the first action of the new Novo CEO,” UBS analysts wrote in a note shortly after the announcement. “Following a period of hyper-growth in employee numbers, Novo is re-sizing headcount with the aim to reduce complexity in the organization,” they added. Novo Nordisk, once the first mover in weight-loss drugs, has been struggling to maintain market share — especially in the key U.S. region — amid a slew of supply chain issues and increased competition from rival Eli Lilly and cheaper compounded weight loss drugs. The company’s share price is currently down over 44% year-to-date. NVO 5Y line Novo Nordisk Doudstar said in July that he was assuming the role with a sense of urgency following the surprise ousting of Lars Fruergaard Jørgensen in May. Soren Lontoft, pharma equity analyst at Denmark’s Sydbank, noted that while the scale of layoffs was surprising, the move itself was not, as it indicates a sense of “determination” from the new CEO. “Novo Nordisk’s workforce has grown explosively in recent years,” Lontoft wrote. “With the challenges in the U.S. and the prospect of a lower growth rate, it seems natural to ‘fit’ Novo Nordisk to the reality that the company is facing.” “This complexity reduction should be reflected in a more agile company that is able to create faster and better decisions. We consider this positive,” Lontoft said. Reinvesting in growth The GLP-1 maker said the layoffs would result in a one-off cost of 8 billion Danish kroner ($1.26 billion). That relates to a near-equal split across both severance costs and asset write-downs from the termination of early stage R & D assets and the closure of some manufacturing sites. As such, the firm said it now expects full-year operating profit growth of 4% to 10% at constant exchange rates. As recently as May and prior to Doustdar’s appointment as chief executive, it was expecting operating profit growth of 16% to 24%. Novo Nordisk added Wednesday that the cuts would ultimately result in annualized savings of around 8 billion Danish kroner by the end of 2026 to be allocated internally to “reinvest for growth.” “We assume that this refers to increased investment in selling expenses in the near-term, and an increase in investment in R & D [research & development] to build growth pipeline for the mid-term,” UBS wrote. Novo Nordisk has, for instance, been bolstering its U.S. manufacturing pipeline, alongside other pharmaceutical firms. In June, it pledged $4.1 billion to build a new plant in Clayton, North Carolina, to boost the supply of its blockbuster Wegovy drug and diabetes treatment Ozempic. Still, until more clarity is provided around the growth strategy — and its timeline for bearing fruit — analysts said a sense of skeptism around the stock is likely to remain. “The key question is when could the topline see the benefit of the reinvestment and what pipeline assets warrant further spending,” UBS wrote. “We expect that investors will remain somewhat skeptical until the growth plan is outlined.” “While we are encouraged that Novo is taking action to reduce complexity and improve the agility of the business, the restructuring program is likely to lead [to] continued questions over the growth outlook for the business,” J.P. Morgan analysts added in a note.
