Novo Nordisk's Pricing Pivot and Its Implications for Long-Term Earnings Growth

The pharmaceutical industry's GLP-1 receptor agonist market has become a battleground for Novo Nordisk and Eli Lilly, with both companies racing to dominate a sector poised to grow into a $180 billion industry by 2034. Novo Nordisk's recent shift to high-volume, low-margin oral GLP-1 therapies-most notably its Wegovy pill-represents a strategic pivot aimed at countering pricing pressures and expanding market access. However, as the sector faces commoditization risks and intensifying competition, investors must assess whether this strategy can sustain long-term earnings growth.

Pricing Strategies and Margin Compression

Novo Nordisk's oral Wegovy, approved in the U.S. in late 2025, is priced at $149 per month for the 1.5-mg and 4-mg doses, with higher doses reaching $299. This pricing reflects a deliberate attempt to undercut Eli Lilly's Zepbound, which, through LillyDirect, offers self-pay prices as low as $299 per month. While Novo's oral formulation targets the needle-phobic segment of the market, its margin structure is under pressure. The company has accepted a 70% price cut for its GLP-1 drugs under the Inflation Reduction Act, a move projected to reduce global sales growth by a "low single-digit" percentage in 2025.

The broader market is trending toward commoditization. Analysts estimate that GLP-1 prices could drop to $250 per month within a decade as generic alternatives and increased competition enter the market. This trajectory mirrors historical trends in biologics, where biosimilars drove down prices for drugs like etanercept and infliximab. For Novo, the challenge lies in balancing volume growth with margin preservation. While its EBITDA margin in 2025 stood at 48.4%, projections suggest a slight decline to 47.75% in 2026 before a rebound to 56.17% by 2031. This implies that Novo's long-term profitability hinges on its ability to scale production and capture market share despite narrowing margins.

Competitive Dynamics with Eli Lilly

Eli Lilly's aggressive pricing and product diversification have reshaped the GLP-1 landscape. By Q2 2025, Lilly held 58% of U.S. GLP-1 prescriptions, compared to Novo's 42%. Its blockbuster drugs, Zepbound and Mounjaro, grew by 140% and 71% in Q2 2024, respectively, while Novo's Wegovy and Ozempic saw more modest gains. Lilly's upcoming oral GLP-1, orforglipron, expected to launch in Q2 2026, could further erode Novo's market share. Unlike Novo's peptide-based Wegovy pill, orforglipron's easier manufacturing process may give Lilly a supply chain advantage.

The rivalry extends beyond pricing. Both companies are preparing for a head-to-head obesity study in Q1 2026, which could influence prescribing patterns. Additionally, Lilly's direct-to-consumer strategy-bypassing traditional pharmacy benefit managers (PBMs) through LillyDirect- has forced Novo to adopt similar tactics, including introductory pricing discounts for Wegovy. These moves highlight a shift toward volume-driven growth, where companies prioritize market access over profit margins.

Valuation Sustainability in a High-Volume, Low-Margin World

Novo's valuation multiples currently reflect a premium to its financial performance, trading at 11.5x 2026e EBITDA and 5.6x revenue. This premium is justified by its leadership in the GLP-1 space and a robust pipeline, including triple agonists that could expand its therapeutic footprint. However, the company's ability to maintain these multiples depends on its capacity to offset margin compression with volume growth.

Historical case studies of biologics commoditization suggest that companies with strong manufacturing capabilities and diversified pipelines can sustain profitability even in low-margin environments. Novo's investment in new manufacturing facilities and its focus on oral formulations align with this model. Yet, Eli Lilly's higher P/E ratio (52x) and faster revenue growth underscore the competitive asymmetry in the sector. For Novo, the key risk is whether its market share can hold steady as new entrants-such as Amgen and Pfizer-enter the GLP-1 space between 2027 and 2032.

Strategic Risks and Opportunities

The primary risk for Novo is the accelerating pace of price cuts. The U.S. government's negotiated price of $274 for semaglutide under the Inflation Reduction Act will take effect in 2027, potentially triggering a price war. Additionally, the TrumpRx initiative and expanded Medicare/Medicaid coverage could drive prices toward a "bargain bin" range, further compressing margins. These pressures are compounded by supply chain bottlenecks and currency headwinds, which could delay the scaling of oral Wegovy.

Conversely, opportunities exist in the oral GLP-1 segment, which is projected to account for one-third of the $80 billion GLP-1 market by 2030. Novo's first-mover advantage with Wegovy, combined with its partnership with CVS Caremark to secure preferred formulary placement, positions it to capture a significant portion of this growth. Moreover, the company's foundation structure-controlling 77.3% of voting shares- provides insulation from short-term shareholder pressures, enabling long-term R&D investments.

Conclusion

Novo Nordisk's pivot to high-volume, low-margin oral GLP-1 therapies is a calculated response to a commoditizing market and aggressive competition from Eli Lilly. While margin compression is inevitable, the company's ability to scale production, innovate with triple agonists, and secure formulary access offers a path to sustained earnings growth. However, investors must remain cautious: the sector's trajectory is increasingly shaped by regulatory interventions, pricing floors, and the entry of new competitors. For Novo, the long-term success of its strategy will depend on its capacity to balance volume expansion with margin resilience-a challenge that will define its dominance in the GLP-1 era.