Novo Falls by Record After Wegovy Maker Slashes Forecast, Names New CEO

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1:15This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

1:37Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. His friends call him Mikey and I'm his friend. I'm calling him Mikey. Mikey Shaw, Michael Shaw, senior pharma biotech analyst at Bloomberg Intelligence. He's based in London. Mikey, you got to talk to me about what's going on with Novo Nordisk. I thought these obesity drugs were the bomb here. What's going on with their guidance?

2:13That was a huge miss for them. Yeah, two pieces of news today. First is the guidance cut, so the second guidance cut of the year. So reported guidance now is calling for 7 % sales growth, 6 % operating profit growth after adjusting for currency. And that compares to 14 % and 15 % respectively previously. Now, a lot of that is related to the U.S. market. There they're still seeing headwinds from compound and GLP-1, which seems to be the main driver that's affecting WGOVI growth. And there's a lack of visibility here. So all of that creates uncertainty for investors and also kind of questions around not only 2025 numbers, but the exit rate into 26.

2:54So there's concerns about mid to long term growth, given how concentrated or how reliant, sorry, Novo is on WGOVI for growth. The other headwind is competition to a ZenPIC. So that's the GLP-1 for diabetes. And that's another key growth driver for the company. Second piece of news, new CEO appointment. So they went with an internal candidate. I think the market was perhaps expecting them to go for an external candidate. So, you know, perhaps a bit of disappointment there. But that said, you know, he's been at the company. So this is Mike Dutster. He's been at the company since 92. He's been heading up international operations since 2016.

3:38And over that time, you know, we've seen international operations sales double to around$18 billion. So, you know, he's an internal hire. He's familiar with the company culture. I think it's a bit too early to, you know, to write him off before he's even started. Now, his focus is going to be on regat, gaining ground to Lilly in the obesity space, maintaining leadership in the diabetes space, and then improving execution. And that's something that's going to be key ahead of the Kagari Sema launch, as well as the launch for its oral GLP-1 in obesity, particularly given Kagari Sema perhaps isn't as differentiated as we had hoped for.

4:17And then the oral GLP-1 profile perhaps trails that of Lilly's. In a call with journalists, though, the new CEO said he's planning to review the company's cost base without setting specific targets and metrics. So could this indicate that Novo is preparing for a period of slower growth after the initial surge in demand of especially the blockbuster WeGoV drug? I mean, I think it will be hard to slash R &D, to be honest. So, I mean, and they would need to continue marketing, continue to do DTC in order to compete with Lilly. They're obviously heavily investing into CapEx at the moment, but there is probably some operating leverage in there to provide some sort of relief.

5:08I mean, the company's got a margin of about 45%, which is at the top end for large pharma. Hey, Mikey, is there any reason to believe that maybe the marketplace has been overestimating the size of this obesity drug market? I think – I mean, yeah, I think there's always a risk with an indication this size. When you look at the market potential, in the U.S. alone, it's 130, 140 million patients, which is the target population. I think that's one-third of our population, man. Yeah, I mean, there is a risk that, you know, perhaps consensus did get ahead of itself. But the difficulty here is, you know, you have, you know, huge runway of patients.

5:50There's obviously limited supply. So it's difficult to know kind of, you know, how quickly that supply can come on board. Now, you know, Nova gives guidance around, you know, their growth prospects, you know, where they think sales, et cetera, are going to go. But they keep – they don't necessarily quantify the cadence to supply and how quickly that's going to come online. So that kind of makes forecasting quite difficult. And obviously, they don't want to give that information because it's competitive information and they don't want Lilly to know about it either. Boy, back in my analyst days, I would have slammed at this management team because that guidance was brutal.

6:27they were nowhere close to hitting it. And they're a big reduction in the guidance. And we see the stock down 22 % today, down 37 % year to date, 52-week low. So they're paying the price for it. Mikey Shaw, folks, he's one of the best healthcare pharma analysts in the city of London. Every institutional investor wants to talk to him. We appreciate getting a few minutes of his time. Mikey Shaw, Senior Pharma Biotech Analyst. Bloomberg Intelligence over there in our London studios. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app.

7:01Listen on demand wherever you get your podcasts or watch us live on YouTube. One of my very first jobs on Wall Street back in the late 80s, I was a research assistant in the Equity Research Department of Paynewell recovering the railroad and trucking industry. So I love the railroads. And today's a big, big deal. Union Pacific agrees to acquire Norfolk Southern for$72 billion. Now, the per share, it's cash and stock, works out to like$320. Yet Norfolk Southern is trading at a 13 % discount,$279 of where it's trading today. It's actually down$7 today. I don't know what's going on out there. I'm not doing this stuff for a living anymore.

7:36But Lee Claskow is. He's a senior transport logistics and shipping analyst for Bloomberg Intelligence. Lee, I look at the stock price of Norfolk Southern, and it tells me a hefty level of skepticism out there in the marketplace that this just mega deal can actually get done. How do you view it? Yeah, I think the whole speculation before the deal was formally announced about a possible consolidation really fueled shares of Norfolk Southern previously. And I think people are just trying to take maybe a breather right now because there are some execution risks, right? This deal is not going to close.

8:10If it does close until early 2027, it needs regulatory approval, which is not an easy thing to do. There were certain rules that were created at the Surface Transportation Board to make it very difficult for large class one rail mergers to happen. That was because at one time in the 80s and 90s, those sorts of deals resulted in terrible service. I think that the rails today were much more cognizant of service as it relates to integration. And I don't really think either company, once assuming a merger does happen, are going scorch earth in terms of what they're going to do to their networks. They mentioned on the call that they had earlier today that they're really not going to lay off any frontline workers.

9:02Most of the probably layoffs are going to happen in the offices. So, you know, that would just mean that services would prevail. And one of the reasons why they are doing this, you know, from an outsider looking in, you know, it does make complete sense. You're going to reduce interchanges. They mentioned on their call this morning that between the two of them, they interchange around a million carloads a day. And if they're just able to, if that car load is able to be on the same network, it's not only going to improve network fluidity, it'll actually lower the railroads, their costs. Let's hope they pass on some of that cost savings to their shippers.

9:48I think that's what shippers might be concerned about. And it'll provide probably a better service product that they can go out and compete against other modes, such as trucks. And, you know, that's, you know, also a good thing because, you know, from an environmental standpoint, railroads are less fuel efficient. You know, trucking kind of deals with, you know, turnover issues and trucker availability issues. Right now, that's not an issue, but at times it can be. And so, you know, it is definitely a very interesting deal. It will create the first transcontinental railroad. But, you know, they do have their work cut out for them to get that regulatory approval.

10:30So the deal is worth$85 billion. How do they plan to make money back? What are the financial wins, so to speak, to justify that hefty price tag? Yeah, they laid out$2.75 billion in synergies, about$1.75 of that. $2.75 is going to be from revenue. So what they're saying is that, you know, we can probably get more volume onto the network because it all of a sudden becomes a much more compelling service offering. And then about a billion dollars in cost savings. And some of that, again, you don't need two CEOs. You don't need two CFOs. You don't need two corporate headquarters. The dimension they are going to have their headquarter in Omaha, where Union Pacific is located, and keep a, I think they worded a major presence in Atlanta, where Norfolk is currently.

11:22So but, you know, obviously they're not going to need as much space as they once have. And then there's technology benefits, you know. So you're only investing, you know, money in technology once, not twice to get those productivity improvements. So I think those are the major aspects of it. And, you know, they mentioned that, you know, they could be, you know, EPS accretive after year two. Lee, he mentioned a lot of regulatory agencies are going to weigh in here on this deal. I also think President Trump is likely to weigh in. Do we know anything about how he might view this deal or just consolidation in general?

12:02What's the view as to the Trump administration? I mean, we don't. The language that management noted on the call is like they wouldn't have have moved forward with this transaction if they felt that it was impossible to get regulatory approval. So whether that means they were talking to the administration, whether that means they were talking to the STB or the DOJ or everybody in between, that's kind of, you know, if you read between the lines is what they were saying. The fact that they're not going to lay off any union folks is probably a net positive for President Donald Trump to say, you know, this is okay with me.

12:44You know, so there's a lot of unknowns still. And again, this is going to take a long time. So we have a deal. It has to get surface transportation board approval, which won't happen at least for a year and a half. Could this spark more railroad mergers in the U.S.? And if it goes through, what will shipping look like in five to 10 years? You said absolutely. Please elaborate. Yeah. So the other railroads in the U.S. are Burlington Northern, which is owned by Berkshire Hathaway. They may make their own bid for Norfolk Southern or decide, you know, we're just going to go after CSX. Because if they do not merge, then they're going to be at a competitive disadvantage.

13:29Why would you want to send your freight across two railroads when you can send it across one? So it just would make sense. And if there is regulatory appetite for this kind of a transaction, you know, you could see a Berkshire hack the way and CSX coming. And, you know, if their competitors were able to get a deal, there's no reason why you wouldn't get a deal done between the two. A lot of ifs and buts and candies and nuts, but we'll see what happens. For an old real estate analyst like myself, today's a big day. I got to speak to two of my favorite railroad analysts on Wall Street. First, Tony Hatch this morning, and now Lee Klaskow.

14:09Senior Transport, Logistics, and Shipping Analyst for Bloomberg Intelligence. Again, the big M &A trade of the year so far, and certainly the biggest one. Well, firstly, one I never thought I'd see, a transatlantic, a transcontinental railroad. Union Pacific, Reisto-acquired, Norfolk Southern,$72 billion. That's about$320 a share. that's in cash and stock, would create the U.S.'s first transcontinental railroad. That's a pretty cool thing. Looking for more investing options? Meet SIBO, the exchange that pioneered options trading. With exclusive trading products like VIX and SPX options, SIBO can help you trade in any market environment.

14:50There are risks associated with SIBO company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. Our hometown is not a test tube. 90 miles northeast of Nashville, a battle for the future of America plays out in one small town. Developers with right-wing ties have purchased hundreds of acres of land. We need cities on a shining hill. This is Our Town, a podcast about what happens when a small town becomes the site of a social experiment and fights back. Guess you didn't move in on a bunch of dumb hillbillies now, did you? Listen to Our Town on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

15:32you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube isabel lee paul sweet we're live here in our bloomberg interactive broker studio streaming live on youtube as well so check us out there Aerospace, airlines, a lot of earnings going on in that part of the world. Boeing and JetBlue today. Let's check in with George Ferguson, Senior Aerospace Defense and Airlines Analyst for Bloomberg Intelligence, safely ensconced down there in Princeton, New Jersey.

16:06Hey, George, let's start with Boeing. I know, you know, for analysts, investors, for Boeing, it's all about cash flow and free cash flow and stemming the free cash flow bleed here. How did the company do this quarter? Yeah, so the free cash flow is still a little bit negative, not much. Cash from operations, positive, a little bit. $200 million, I think it was, roughly on$200 million negative free cash flow,$200 million positive in cash flow, I think, roughly. So we're seeing an inflection point here in cash flow. So cash flow had been negative for the last, I think it was six quarters before this.

16:43And I think that's just a sign of they're getting more aircraft delivered. they're gonna you know they've got a lot of inventory still they'll pull off the shelf to build aircraft going forward to pull a bigger report proportion of stuff off the shelf than they would during normal times which should juice that cash flow up uh you know pretty well so i think it it's you know the turnaround is still in uh is underway it looks like it's uh you know well in in swing in the results we saw and the way company management commented on the end of the year. And so I think it was a pretty good results quarter for Boeing.

17:24Again, turnaround intact. How are they addressing quality and safety issues, especially when it comes to the 737 MAX program? Yeah, I mean, as Kelly Ortberg said, it's a process. I think just the sign of seeing increased deliveries is showing us that the quality improvement at Spirit has seen success. And they're talking about they're at 38 737s a month now. Kelly O 'Bourg says he's going to approach the FAA in a short period of time and work on the 42 737s a month. So again, he must have some level of confidence that his quality and his engineering is good in order to go further. It's not perfect.

18:13They've been slowed down a little bit in the certification of 737-10 and 7. They've pushed them into 2026. I think it's okay. That's not a big move. We'd like to see them come faster because 737-10 is a large competitor to the Airbus A320, which is very successful and one of the reasons they saw United place a big order with Airbus. But again, I think that you can't expect this stuff to go in a straight line. And the fact that they think 2026 is when they could get certification, it doesn't tell me anything's broke. It just tells me the process is nonlinear and I think to be expected in aerospace.

18:52All right. Also, JetBlue posted a smaller than expected loss here. What's going on with JetBlue in the airline business these days? because I know the last quarter, boy, these airline companies were really reticent to give any kind of guidance. Yeah, I mean, a lot of them have come back with guidance and a lot of cases lower. A lot, you know, the airline business right now is really counting on less capacity in the second half of 2025. And we'll see how that goes. Last time I looked at domestic capacity plans for 3Q, it's kind of about zero growth. I mean, I think they need to cut capacity in the marketplace.

19:27If you look at JetBlue's results, load factor fell by, I think it was around 300 basis points, down to the low 80s from mid 80s. And they held fares pretty much flat. Yields were kind of just up a little bit. So that just tells me that there's too much capacity in this market. They just can't fill airplanes at the right price. JetBlue has other problems like, you know, the gear turbofan keeps them from expanding. That means costs are ballooning on them. But I don't see how they'd want to expand right now. Because, again, what I see is a market that can't fill airplanes at the price that's going to keep them very profitable.

20:08And so someone's got to cut. And the question is who. The full-service carriers are saying, hey, we've got premium to subsidize us. We don't care. The low costs are going to have to. JetBlue will cut in 3Q. But every time they cut, their costs go higher per seat. So they're in a bit of a challenging position. It does seem like the issues just compound for the companies in this space from aircraft shortages, delivery delays, pilot shortages, wage inflation, labor negotiation and so on. Are there differences in how Boeing and JetBlue addressing the issues or is it really an industry wide consensus and problem?

20:44Well, I mean, if you talk to Boeing, everybody wants an airplane, right? And they're sold out in the 737 and 787 to the end of the decade. Everybody wants the newest. And I think what needs to happen is, again, the airlines are just putting too much capacity in the marketplace, especially in the U.S., and someone has to cry uncle and say, hey, we can't take the profitability at these levels, park some airplanes, get them out of the business so they can right-size capacity. And I think nobody wants to do it. You have some competitors that are in a situation where they've, you know, some of them have declared chapter 11, like spirit, and then refashioned themselves and got back out in the marketplace.

21:25But it's either someone's going to have to go away or the market's going to have to get negative enough in profitability that people start to park airplanes. As we get into late end of this year, 4Q and 1Q, those are weak quarters for the US airline industry. If something doesn't improve, if you've got a JetBlue that's very positive in profitability in 2Q without a change in this market, that's a strong negative near the end of the year. People will start to cut capacity and try to boost fares. So, George, who does that? Is it one of the big three? I mean, JetBlue can't drive capacity in this industry.

22:00It's got to be one of the big three, right? Yeah. Look, I don't think it's the big three are in a game of chicken with the low cost, right? They think that they've got pole position here and that they just keep capacity and someone's going to fail on the low-cost side because the low-cost doesn't have this premium seating. They might be right. Right now, it looks like their profitability is hanging in there. The low-cost carriers are the ones taking it on the chin. Yep, and we saw Southwest Airlines actually now kind of start charging for bags and now you can do seat reservations and all this stuff.

22:35Going to premium. Yep, they didn't do before, which was part of their cachet. One could argue their brand, but they're saying, heck, we need the revenue. George, thanks so much for joining us. We appreciate that. George Ferguson, senior aerospace defense and airlines analyst. If it flies, he knows what's going on there. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com. The iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

23:17Next week on Leaders with me, Francine Lacqua. I speak with Harvard Business School professor Linda Hill about what CEOs need to know to be successful. It really is not about them. It is about the organization. About how to lead in the age of AI. That requires a lot of confidence. And why great leaders embrace conflict. You need to amplify difference. Listen and watch Leaders, the podcast with me, Francine Lacroix on Bloomberg TV or wherever you get your podcasts.