Morgan Stanley Shifts Stance on Novo Nordisk, Sees Valuation Aligning with Risks After Steep Decline
In a significant reassessment, Morgan Stanley has upgraded pharmaceutical giant Novo Nordisk from Underweight to Equal-weight, signaling a belief that the stock's sharp sell-off has brought its valuation to a more reasonable equilibrium with the company's looming challenges.
The bank's analysts pointed to a roughly 40% decline in share price since late January, a slide accelerated last month when Novo warned of slowing sales and profit growth this year, primarily due to anticipated pressure on U.S. sales.
"The market's reaction to the REDEFINE-4 trial data and guidance reset has been severe, but in our view, it has now created a valuation floor that better accounts for the uncertainty ahead," said Morgan Stanley analyst Thibault Boutherin. He reduced the price target to 250 Danish crowns from 270 but argued the current price near 11 times estimated 2026 earnings offers a balanced risk-reward profile.
The analysis highlights a pivotal transition period for Novo. While its blockbuster drugs Ozempic and Wegovy revolutionized obesity and diabetes treatment, the path forward is fraught with intensifying competition and a looming "patent cliff" for semaglutide, the active ingredient in both drugs. Disappointing data for the next-generation candidate CagriSema has further clouded the long-term outlook, with Morgan Stanley now projecting peak sales of $4.4 billion and a likely niche role for patients unresponsive to rival therapies like Eli Lilly's Zepbound.
However, a notable bright spot emerges with the Wegovy pill. Boutherin cited "exceptionally strong" early U.S. prescription trends, with approximately 130,000 weekly scripts recorded in the seventh week after launch. This prompted the bank to raise its sales forecasts for the oral therapy to $2 billion in 2026 and $3.4 billion in 2027.
Despite this, risks persist for the core injectable business. Prescription trends for Ozempic and injectable Wegovy in the critical U.S. market have underperformed initial expectations, creating potential downside risk for 2026. Morgan Stanley models modest mid-term growth of around 5% in sales and 4% in EBIT from 2026-2029 but cautions that uncertainty remains high.
The firm views 2026 as a decisive transition year, with the expected launch of Eli Lilly's oral competitor, orforglipron, in the second quarter poised to reshape the obesity market and test the trajectory of Wegovy's pill form.
Market Voices
David Chen, Portfolio Manager at Horizon Capital: "This upgrade is a classic 'catching a falling knife' assessment. While the valuation is less stretched, the fundamental headwinds—competition, pipeline questions, patent expiry—haven't disappeared. It's a tactical move, not a structural all-clear."
Sarah Wilkinson, Healthcare Analyst at ClearView Research: "Morgan Stanley is right to highlight the differentiation in the story. The injectable franchise is maturing under competitive pressure, but the oral Wegovy data is genuinely impressive and represents the next major growth vector. The market was punishing the whole company; now it's time to discern the segments."
Michael Rossi, Independent Investor: "This is too little, too late from the analysts. They downgraded near the top and are now upgrading after a 40% bloodbath? The entire GLP-1 narrative is unraveling as reality sets in—sky-high prices, insurance pushback, and now Lilly's oral drug. Calling this 'balanced' is just trying to put a floor under a stock they helped inflate."
Dr. Anya Sharma, Endocrinologist at Metropolitan Hospital: "From a clinical perspective, having effective oral options like Wegovy's pill is a game-changer for patient adherence and access. The commercial battle between Novo and Lilly will ultimately benefit healthcare providers and patients through more choices and potentially better pricing."