Danish Life Sciences Sector: A Fundamental Reassessment Amid Structural Vulnerabilities

The life sciences sector in Denmark, long a global leader in pharmaceuticals and medical devices, now faces a critical inflection point. Terry Smith's scathing public critique of Novo Nordisk and Coloplast—two of the sector's crown jewels—has laid bare systemic risks that extend far beyond governance missteps. This article argues that the sector's reliance on mature drugs, regulatory vulnerabilities, and declining R&D credibility demand a comprehensive reevaluation of growth sustainability and valuation metrics. Investors should proceed with caution, considering selective short positions or reduced allocations until innovation credibility is restored.

The Catalyst: Terry Smith's Revelations

Fundsmith's Terry Smith, a long-time bull on Danish biotechs, recently downgraded Novo Nordisk and Coloplast to “hold” after years of advocacy, citing “astonishing” leadership failures and strategic missteps. His critique, driven by a 30% drop in Novo's shares and a 23% decline in Coloplast's stock in 2025, highlights three sector-wide vulnerabilities:

1. Overreliance on Mature Drugs: Novo Nordisk's dominance in GLP-1 drugs (Ozempic/Wegovy) is under threat from Eli Lilly's superior efficacy and pipeline diversification. Despite its $95 billion market cap, Novo's inability to defend its U.S. market position against generic and biosimilar competition—exacerbated by regulatory and legal challenges—raises questions about its long-term growth trajectory.

2. Governance and Leadership Gaps: Both companies have delayed replacing ousted CEOs, while their foundation-controlled governance models have proven slow to adapt. Smith's frustration over Novo's “failure to snatch victory from the jaws of victory” underscores a lack of agility in responding to competitive and regulatory pressures.

3. Operational and R&D Declines: Coloplast's post-acquisition struggles—exemplified by its $1.3 billion Kerecis acquisition—have disrupted its once-reliable revenue growth. Meanwhile, Novo's R&D pipeline shows diminishing returns, with high-profile setbacks like the underwhelming CagriSema trial.

Valuation Discounts and Structural Risks

The sector's valuation metrics now appear stretched relative to its risks. highlights investor complacency. At a time when R&D spending as a percentage of revenue has stagnated (Novo's R&D spend fell to 10% of revenue in 2024 from 12% in 2020), the premium is increasingly unjustified.

Key Risks to Valuations:

• Generic Competition: The impending 2026 expiration of Ozempic/Wegovy patents could trigger a 20–30% revenue drop for Novo, absent a robust pipeline.
• Regulatory Overhang: U.S. legal battles over pricing and marketing practices—already costing Novo millions—could escalate, further diverting resources from innovation.
• Declining R&D Returns: Coloplast's failed acquisitions and Novo's pipeline gaps signal a broader sector-wide decline in R&D efficiency.

Competitive Threats: The Eli Lilly Factor

Eli Lilly's aggressive pipeline (orforglipron, retatrutide) and superior efficacy in head-to-head trials with Ozempic/Wegovy have already begun eroding Novo's moat. With a projected 50% market share by 2030, Lilly's focus on oral formulations and muscle-preserving therapies positions it to dominate a post-generic era. Novo's response—limited to incremental improvements like CagriSema—has fallen short, as evidenced by its underwhelming trial results and 30% stock underperformance in 2025.

Investor Sentiment and Allocation Strategy

The sector's reputation as a “sure bet” is crumbling. Smith's Fundsmith Equity Fund fell 1.9% in H1 2025, with Novo alone accounting for nearly all the loss. Institutional investors are now rethinking allocations:

• Short Positions: Consider shorting Novo Nordisk ahead of the 2026 patent cliff, given its valuation premium and pipeline risks.
• Sector Rotation: Shift capital to competitors like Eli Lilly or Boehringer Ingelheim, which offer better growth profiles and diversified pipelines.
• Value Discipline: Avoid Coloplast until it demonstrates post-acquisition operational turnaround and CEO succession clarity.

Conclusion: A Call for Sector-Wide Reassessment

Denmark's life sciences giants face a convergence of risks—from maturing drugs to governance gaps—that demand a fundamental reassessment of their growth narratives. Until Novo and Coloplast demonstrate the agility to innovate and navigate regulatory hurdles, their valuations remain vulnerable. Investors would be prudent to adopt a skeptical stance, leveraging shorts or reduced allocations until the sector proves it can adapt to a fast-evolving market.

The era of Danish life sciences as a “buy-and-hold” sector is over. The time for hard questions—and disciplined exits—is now.