Novo Nordisk: Forensic Risk Signals Behind the Obesity Drug Boom
Despite blockbuster growth in GLP-1 therapies, our analysis uncovers subtle red flags in revenue recognition, governance shifts, and operational execution that investors should not ignore.
SignalVest Forensic Intelligence Red Flag Report: Novo Nordisk (NVO)
Summary: Novo Nordisk’s latest annual (FY2024/2023) and interim H1 2025 filings reveal robust financial performance driven by its diabetes and obesity franchises, with no obvious accounting red flags in revenue or earnings quality. Key forensic indicators like the Beneish M-Score and Altman Z-Score do not signal manipulation or distress, respectively. Revenue recognition involves judgment (e.g. handling of U.S. 340B drug discount program), but the company appears to apply conservative criteria to avoid future reversals. Accrual levels are low – operating cash flow exceeds net income – indicating high earnings quality. Margins have expanded in line with product mix shifts (GLP-1 obesity drug growth), not due to any apparent one-off gimmick. Operationally, Novo Nordisk faces capacity and competition challenges (e.g., supply constraints and rival GLP-1 therapies), which prompted a 2025 guidance cut and a surprise CEO succession. Governance changes (the ousting of a successful long-time CEO amid strategic concerns) constitute a possible red flag but primarily reflect a strategic pivot rather than financial impropriety. Below, we detail the findings across financial, operational, and governance red flag categories.
Financial Red Flag Indicators
Revenue Recognition & Quality: No evidence of aggressive revenue recognition. Novo’s sales grew ~31% in 2023 (DKK 232.3 billion vs 176.9 billion in 2022), mainly from surging demand for GLP-1 diabetes/obesity drugs. Trade receivables rose proportionately (DKK 64.8B vs 50.6B), keeping days sales outstanding stable (~102 days vs ~104 prior year). This suggests revenue growth was backed by actual cash collections, not extended credit or channel-stuffing. The company’s accounting for U.S. sales is cautious regarding the 340B Drug Pricing Program (a rebate scheme under legal dispute) – revenue is only recognized to the extent a significant reversal is unlikely. Indeed, provisions for sales rebates ballooned to DKK 100.5B at end-2023 (up from 70.3B), reflecting expected discounts, which Novo does not prematurely count as revenue. Notably, Q2 2025 U.S. sales got a one-time boost of ~DKK 3 billion from reversing prior-year rebate provisions (340B adjustments). While this elevated H1 2025 revenue, it was transparently disclosed and tied to the resolution of a pricing policy – a red flag to monitor only if such adjustments became routine. Overall, revenue recognition policies appear conservative and well-disclosed, with no red flags like unexplained surges in receivables or sudden policy changes.