Investing.com -- S&P Global Ratings has upgraded the Denmark-based pharmaceutical company Novo Nordisk (NYSE: NVO ) A/S to ’AA’ from ’AA-’ due to its sustainable strong ongoing growth prospects. The outlook remains stable.

Novo Nordisk is projected to maintain a profitable growth rate at or above 10% annually in the next two to three years. This is attributed to its strong patent-protected drugs portfolio and growing patient population in its core obesity and diabetes therapeutic areas.

The medium to long term growth prospects are further boosted by solid underlying growth for its medicines in core therapeutic areas of diabetes and obesity. This includes the positive phase 3 trial results for the next-generation anti-obesity blockbuster drug CagriSema and the expected first-to-market oral obesity product semaglutide 25 milligrams (mg).

The company is expected to gradually reduce leverage to close to 0x debt to EBITDA by 2027. This is due to good growth momentum and reduced discretionary spend, notably share buybacks, resulting in positive discretionary cash flows amid increasing capital investments linked to capital expenditure (capex).

The stable outlook reflects S&P Global Ratings’ expectation that Novo Nordisk will maintain strong credit metrics, with notably adjusted debt to EBITDA trending toward 0x. This is thanks to solid and profitable projected growth momentum in the core diabetes and obesity therapeutic areas, combined with prudent financial policy.

The rating action reflects forecasts that Novo Nordisk’s recent strong and profitable revenue growth should remain sustained in the coming years. This is due to value-accretive new product launches and strong growth prospects in the key obesity care segment.

Overall revenue growth is forecasted to remain strong at 16%-18% in 2025 and 2026, and close to the 10% area in 2027. This is in the context of the average growth rate of 23% in 2021-2024 propelled by the launch and uptake of key anti-obesity product Wegovy, and strong ongoing growth of diabetes franchise GLP-1 products Ozempic and Rybelsus.

Despite expected pricing pressures within the portfolio in 2027, notably in the highly profitable U.S. market, Novo Nordisk’s solid growth prospects are expected to extend beyond early 2030. Key growth-driving drugs, Ozempic and Rybelsus, in the diabetes franchise are patent-protected until 2032. Similarly, in the obesity segment, Wegovy’s patent protection also runs into 2032.

Novo Nordisk’s somewhat concentrated therapeutic area and associated product portfolio is outweighed by the strength and breadth of research and innovation, the well-established track record of launching large blockbuster drugs, and the increasing size of the obesity therapeutic segment given high demand for medications.

Despite the significant increase in capex over the next two to three years, Novo Nordisk is expected to maintain strong free cash flow generation and gradually reduce debt leverage toward 0x with a markedly reduced discretionary spend.

The stable outlook reflects the expectation that Novo Nordisk will be able to maintain solid and profitable growth thanks to its innovative R&D pipeline and high demand for obesity and diabetes medications in key markets. This should help offset certain pressures in the company’s product portfolio, notably broader pricing pressures particularly in the U.S.

A downgrade could occur primarily if adjusted debt to EBITDA materially surpassed 1.5x for a prolonged period. This could occur if the company’s innovation engine falters and it is not able to replenish maturing products in its core therapeutic areas in a timely manner leading to strong erosion of its earnings and free cash flow base.

An upgrade would hinge on further strengthening of Novo Nordisk’s earnings generation capacity, most notably away from the dependence on the core diabetes and obesity care segments and the single class of drugs (GLP-1s) driving growth prospects.

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