It was an animal 4-5 years for Novo Nordisk (NVO). The ADRs surged aloft $50 in 2015, 2016, 2017 and 2018, alone to falter abominably and underperform a able banal bazaar (NYSEARCA:SPY) as able-bodied as the added contempo backlash in the biotech area (IBB). Finally, however, as the SPY was bottoming in Q3 this year, NVO had amorphous a structural uptrend. Its assay of $50 as abutment captivated twice, in September and October, and it afresh burst $60. Note, however, NVO’s capital trading venues are not in the US.
There was a acceptable acumen for this, as I acclaimed in my aftermost NVO commodity arise on Sept. 23:
… Actual continued term, NVO’s opportunities in diabesity [diabetes/obesity] arise bright. By 2045, there may be abutting to 1 billion diabetics globally, and affluence of adipose people. Both are markets that are underserved, and represent NVO’s focus. Rybelsus may be the sales and accumulation agitator that can admonition NVO abound at a clip aloft that of the accepted all-around abridgement for abounding years to come. Thus I attending at this debt-free name as one that may accommodate acceptable anniversary allotment increases as able-bodied as advantageous allotment bulk appreciation.
NVO was about $53 then, adjoin $61.31 at Friday’s close. It has burst into new aerial arena in USD terms, and the abiding blueprint looks to be resuming its appropriate convolute arrangement bullishly (shown adjoin an S&P 500 ETF (SPY) aback the SPY was formed in January 1993, application a semi-log scale):
Data by YCharts
Novozymes (OTCPK:NVZMY) was spun out of NVO in 2000 (I ahead in November), but I do not apperceive what the hit was to NVO’s allotment price. Thus, to appraisal NVO’s acknowledgment the accomplished 20 years, I will artlessly use its low bulk in January 2000. This was $1.48 per E-Trade data. I appraisal that NVO has accepted 25X this century. Abacus dividends, I appraisal its CAGR absolute acknowledgment to be actual abutting to 20%. This is far aloft to Microsoft (MSFT), which has tripled this century, and about according to that of Amazon (AMZN).
Beginning with the Rybelsus story, the blow of the commodity updates why I anticipation in September that its approval by the FDA could accommodate a springboard for success for NVO and its shareholders, and why I’m annoyed with NVO’s advance to date, awaiting full-year balance address and a action amend on Feb. 5.
These drugs are allotment of the about century-long antagonism amid NVO and Eli Lilly (LLY).
Here, NVO became the aboriginal baton in the glucagon-like peptide receptor agonist (GLPa) chic of drugs with Victoza, which is injected already a day and afterwards acquired FDA approval for abridgement of MACE – aloft adverse cardiovascular events.
The GLPa chic itself represents a added almighty way to go aloft the gliptin (note the g, l, and p acronym in that name to tie into the GLP-related approach of activity) chic of drugs; the ancestor gliptin is Januvia, a Merck (MRK) mega-blockbuster.
LLY countered Victoza, a bit backward but absolutely angrily with a once-weekly GLPa, the mega-blockbuster Trulicity. Trulicity is a biologic; Victoza is a peptide but not a biologic.
An advantage of the peptid, liraglutide, begin in Victoza is that it is not difficult to adapt structurally to extend the half-life. NVO did aloof that, alteration one of the non-active segments of liraglutide to add a lipid ancillary alternation that makes the consistent new biologic (semaglutide) able to be dosed already a week.
While authoritative that change, the bounden armpit of semaglutide to the GLP receptor remained the aforementioned as that of Victoza. This accustomed NVO to be assured that semaglutide’s ability would be at atomic as acceptable as that of Victoza.
Ozempic came to bazaar two years ago, while Trulicity acquired a ample characterization for MACE reduction. Countering that, Ozempic leads to greater weight accident than Truliciity; anniversary accordingly has a actuating talking point aback business both to M.D.s and to payors.
NVO has been accomplishing a best job replacing Victoza with Ozempic, admitting the clip of Ozempic’s authoritative approval varies from bazaar to market.
So far, it’s been an alike bout amid Trulicity and Victoza/Ozempic. But NVO has now taken, and is planning to booty what could be a transformative bound advanced that ability accord it an acutely large, abiding franchise. Importantly, I apprehend Trulicity sales to grow, aloof at a slower clip now; and, LLY has assorted action accessories in the works to alter Trulicity. I ahead the GLPa acreage is activity to be actual big, with added than one winner, but for the abutting few years and conceivably continued term, I like NVO’s affairs to change the game.
Here’s my cerebration on this befalling for NVO.
Using technology co-developed with Emisphere (OTCPK:EMIS), which receives low single-digit royalties on Rybelsus sales, NVO was able to accomplish semaglutide into an articulate drug, the aboriginal marketed articulate peptide. Furthermore, while Phase 2 studies on articulate semaglutide, now branded as Rybelsus, aloft questions whether the biologic would acquire able authority at a tolerable dose, the Phase 3 studies afraid to the upside. The college alive dose, 14 mg, works absolutely able-bodied in blurred claret amoroso in Blazon 2 diabetes (T2D), and in the analytic trials was about able-bodied tolerated. Rybelsus at both the 7 and 14 mg doses additionally usually provides abundant weight accident to accomplish ample patients happy, admitting it is not almighty abundant to get a academic FDA weight accident indication.
Now let me bifold aback to the gliptins. One may ask, why go to the agitation to about actualize an expensive, specially-coated GLPa for articulate administering Do you not aloof end up with accession Januvia?
The acknowledgment is no, for added than one reason:
Let’s attending at this next.
It is now accepted for a new actinic commodity for diabetes to be advised in a CVOT (cardiovascular outcomes trial). Post-approval, Januvia was apparent to be about identical to placebo in a CVOT. But surprisingly, in a bound admeasurement Phase 3 CVOT, Ozempic looked able in preventing MACE. The catechism was whether this abstraction was ample and acceptable abundant for the FDA to accord Ozempic a MACE indication. Afterwards all, the Januvia abstraction I referred to advised over 14,000 patients, and 839 Januvia patients suffered a MACE. The Ozempic abstraction was alone done in 3,200 patients, with alone 108 Ozempic patients adversity a MACE (Ozempic P.I., PDF slides 20-21).
NVO accustomed acceptable account backward aftermost week:
Novo Nordisk today appear that the U.S. Food and Biologic Administering (FDA) has accustomed a new adumbration for Ozempic® (semaglutide) bang 0.5 mg or 1 mg to abate the accident of aloft adverse cardiovascular contest (MACE) such as affection attack, stroke, or afterlife in adults with blazon 2 diabetes and accepted affection disease.1 Added capacity were added to the Rybelsus® (semaglutide) tablets 7 mg or 14 mg Prescribing Information about the primary assay for PIONEER 6…
Now NVO has with Ozempic what LLY has with Trulicity (fine credibility of the capacity of anniversary drug’s CVOT notwithstanding), and now NVO can advance the afterwards abstracts on semaglutide in its articulate anatomy (Rybelsus P.I., PDF accelerate 20):
14.4 Cardiovascular Outcomes Balloon in Patients with Blazon 2 Diabetes Mellitus and Cardiovascular Disease
… Non-inferiority to placebo was established, with a hazard arrangement according to 0.79 (95% CI: 0.57, 1.11) over the boilerplate ascertainment time of 16-months. The admeasurement of patients who accomplished at atomic one MACE was 3.8% (61/1591) for RYBELSUS 14 mg and 4.8% (76/1592) for placebo.
For best doctors, I acquire that this will be actuating that Rybelsus prevents MACE. The aplomb breach for what was artlessly a noninferiority abstraction alone hardly overlaps 1.0; the biologic is the aforementioned as in Ozempic; and the bounden armpit is the aforementioned as with Victoza.
The added adult doctors may additionally acknowledge that not alone is semaglutide in aspect a long-acting liraglutide, but it may additionally be a bigger drug. In accession to actuality bigger in alleviative blubber (Ozempic adjoin Victoza), attending at the about accident reductions for MACE in the CVOTs:
This suggests – admitting afterwards affidavit – that semaglutide in either of its forms is a bit bigger biologic than liraglutide.
While Rybelsus was accustomed in September, NVO appear that it would alone do a bendable launch, introducing it to endocrinologists and added specialists. I acquire that NVO was cat-and-mouse for FDA’s accommodation on the CV break afore activity advanced business Rybelsus to primary affliction physicians. The key catechism I see is aloof how important a one pill, once-a-day GLPa biologic is to doctors and patients adjoin a once-weekly injection.
The acknowledgment is complicated. A T2D accommodating who is already injecting already or alive a day (or added often) with insulin may absolve and not affliction a lot about one added bang a week. But, a new assay archetype is that there are now three commutual articulate treatments for T2D that are accurate benign adjoin the aloft aggravation of T2D, CV disease. These are :
Most T2D patients alpha off with balmy disease, but as time goes by, age does its thing, and with the actual aerial prevalence of T2D, there is a actual ample analytic charge for an all-oral assay archetype of 2-3 biologic treatment. In that setting, once-weekly injections are a aloft turn-off. This is accurate to by the CEO of Gilead (GILD). In his presentation at a contempo bloom affliction conference, he discussed what HIV-positive patients crave to adopt an injectable over an articulate drug:
… what they acquaint us is, look, we don’t appetite a already account intramuscular injection, we will go with… finer an injectable that is beneath frequent. Perhaps, already a division or alive a year.
This comports with my acquaintance as an office-based cardiologist. Bodies do not like to become patients, and already they acquire that, they appetite neither the affliction and bother of injections, and psychologically they feel beneath ailing if all they do is booty a bolus in the morning and move on than if they consistently inject themselves.
Also, and conceivably crucially, it’s a abundant easier advertise for a alive physician ambidextrous with a accommodating to say, one pill, already a day than to say, aloof shoot yourself up every anniversary and you’ll be bigger off.
Thus, I apprehend that there is upside to Street expectations on Rybelsus. I apprehend able doctor and accommodating accepting of the Rybelsus/Ozempic axis, and alike added so aback aerial dosage Ozempic assets an blubber indication.
While it’s added off, the CVOT for Rybelsus could accommodate added upside with a specific MACE adumbration the ambition based on a ample advancing Phase 3 study.
I attending advanced to the Rybelsus/Ozembic one-two bite actuality abnormally acknowledged in the primary affliction market, which drives the aggregate of diabetes biologic sales. Risks are several, and accustomed NVO’s affection for advancing appraisement on avant-garde drugs, one of the risks involves problems accepting ample abundant advantage for the biologic with few restrictions from insurers.
Consensus has NVO advertisement $18B in revenues for all of 2019. I apprehend that as the years cycle by, NVO’s GLPa authorization will advance this college materially (along with accepted advance in its added artefact lines).
For a little accomplishments in bazaar allotment growth, see NVO’s Q3 presentation, slides 8-10. Accelerate 10 includes Saxenda, which is aerial dosage Victoza for blubber and which will acceptable be supplanted by aerial dosage semaglutide (injectable), demography the blubber bazaar to once-weekly injections from once-daily. Excluding Saxenda, yoy sales of GLPa drugs rose 20%. For the aboriginal 9 months of 2019, GLPa’s contributed 83% of NVO’s sales advance but were alone 26% of absolute sales (Q3 columnist release, p. 4).
These numbers advance $4.6B for NVO’s Victoa/Ozempic/Rybelsus for aftermost year.
Saxenda sales may end up abutting to $1B and would be in accession to the aloft number.
Given the success of added differentiated, best-in-class drugs for altitude that are both accepted and austere – ahead Lipitor with aiguille sales conceivably at $18B in today’s dollars – I ahead at atomic accession $6B in added GLPa sales for Ozempic and Rybelsus (and continuing all-around Victoza sales, mostly ex-US) over 2019 sales, advancing by about 2025.
In addition, I apprehend continuing advance of GLPa’s for obesity, with Saxenda continuing to abound rapidly globally and again be supplanted by branded aerial dosage semaglutide for obesity.
The alive clairvoyant will agenda that while I apprehend assorted outcomes, these are abstract and accountable to aerial degrees of uncertainty.
In added words, my ambition in captivation NVO is for its GLPa drugs to accomplish aerial single-digit circuitous advance for the aggregation as a accomplished for years to appear if the blow of the company’s sales captivated steady. But, I apprehend the company’s absolute accessories and action to accomplish growth, so I’m adorable for civil double-digit advance for years to come, which eventually could accomplish somewhat college net accumulation margins than NVO is experiencing appropriate now.
I ahead this array of aftereffect would be adorable in a apple of actual apathetic all-around advance in pharma sales, accustomed NVO’s P/E is agnate to that of abounding added above biotechs that are not accepted to abound actual fast.
No guarantees, but aback I like best of what I see in the blow of NVO’s artefact account and pipeline, I like the allowance of actuality a accommodating stockholder.
NVO’s affairs for semaglutide is activity to advance in its articulate formulations. There is little admonition on this from the company. Please see slides 23-24 from NVO’s diabetes presentation from November 2019 Capital Markets Day for some hints about its plans.
Another way to ahead about semaglutide is as allotment of a combination. One potentially aloft artefact that NVO has in analytic trials is a aggregate of injectable semaglutide with NVO’s investigational once-weekly insulin. See, pipeline, LAISema (Phase 1). Added combinations may follow.
Also account afterwards and I ahead not “in” the banal are NVO’s aspirations for semaglutide to spearhead its move into diseases that are mostly accompanying to diabetes as able-bodied as some that are distinct. NVO is assuming this in presentations with semaglutide in the centermost of a circle, with the afterwards on the ambit (slide 25 from the diabetes presentation on Capital Markets Day):
NVO has added initiatives aloft insulin in diabetes, and aloft semaglutide in affective into new ameliorative areas. The action is abundant added alive than it appeared to be about two years ago.
NVO’s banal is not cheap; little is bargain in today’s banal market. So, risks to owning the banal ambit from bazaar risks bottomward to area risks (price controls in the US and added risks) and again bottomward to company-specific risks. Because NVO is adorable for so abundant of its advance in the 2020s to appear from semaglutide, any assurance or aggressive issues with it could acquire outsized furnishings on the banal price. I will acquire added to say about my thoughts on risks in my abutting article, to chase the full-year balance report. For now, anyone adorable into own NVO shares or ADRs should be acquainted of the company’s description of its accident factors in its authoritative filings.
Because this commodity focuses about alone on GLPa’s, it is not at all absolute apropos NVO. Best of NVO’s sales appear from insulins, which are an important allotment of its pipeline. Added key genitalia of its action chronicle to blubber (with or afterwards diabetes) and a array of biotech projects. So it is accessible for GLPa’s to added than accommodated expectations and the aggregation to falter, or for GLPa’s to abort but the banal to accomplish alpha nonetheless.
I ahead that GLPa’s additional a abstinent bulk of success could acquiesce NVO to abound at an boilerplate amount of 10-15% per year for some years to come, conceivably college for some years of aerial advance in GLPa’s and added absolutely avant-garde products. NVO is blame advanced with first-in-class/best-in-class accessories with abiding apparent aegis in a all-around diabetes bazaar that is underserved. It is additionally arena a continued bold in an alike added broadly underserved market, that is for obesity. NVO is authoritative the case to the medical association command ample that blubber is a abiding ache and that drugs to amusement it deserve allowance reimbursement. I accede with NVO and am hopeful of a ample medical and bartering success in blubber with a multi-decade runway.
With this article, in a faculty I acquire bankrupt a bend that began with my aboriginal two NVO accessories in March 2016. These were Novo Nordisk: Overview And Focus On Its Diabetes Authorization (Part 1), and Novo Nordisk: The Action Could Really Shine (Part 2 Of 2). The banal is up about 10% aback then. This underperformance to its benchmarks comes partly because its P/E was 28X aback again aloof as the US insulin bazaar was about to access an abnormal aeon of abiding deflation, partly because it alone its Phase 2 articulate insulin projects, partly because the biotech area was about to abominably lag a ascent bazaar for the abutting 40 months, and for added reasons.
Is the run of bad account mostly over for NVO? I’m action that it is and that its abiding uptrend has resumed.
Even with about collapsed achievement aback 2015, NVO is up about 25X this century, additional dividends. I ahead that with semaglutide allowance to advance the way, it can bifold balance about every 5 years, conceivably acceptance the banal to adore a agnate achievement into 2040.
As always, cogent risks to the aggregation and the banal exist. If interested, accede reviewing the absolute November Capital Markets Day presentations and again abstraction what NVO says and publishes on Feb. 5 and in any advance presentation (typically in London) which usually follows promptly afterward.
I will be out of boondocks on Feb. 5 and may or may not be able to get an commodity out appropriate away, but I attending advanced to a new NVO commodity afterwards those contest as anon as possible.
Thanks for account and administration any comments you ambition to contribute.
Submitted Sunday, NVO $61.31.
Disclosure: I am/we are continued NVO,MRK,GILD,MSFT,SPY. I wrote this commodity myself, and it expresses my own opinions. I am not accepting advantage for it (other than from Seeking Alpha). I acquire no business accord with any aggregation whose banal is mentioned in this article.
Additional disclosure: Not advance advice. I am not an advance adviser.
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