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Morningstar | Raising Novo Nordisk FVE to $52/DKK 344 Due to Oral Semaglutide's Improving Prospects

We've significantly raised our fair value estimate for Novo Nordisk to DKK 344 per share/$52 per ADR from DKK 284/$44.50, following strong cardiovascular outcomes data for oral semaglutide in the Pioneer-6 study. This solid data, which arrived earlier than we had expected, will allow Novo to file for approval in the first half of 2019 and potentially receive approval by the end of 2019, if the drug receives priority review status from the FDA. The timing of the strong data means that Novo may not need to run a separate post-approval CV outcomes study for Ozempic, as Novo might be able to use preapproval CV outcomes data from Ozempic (Sustain-6 trial) and oral semaglutide (Pioneer-6). We're also encouraged by the October ADA guidelines that give GLP-1 therapies like Victoza and Ozempic strong positioning, recommended as first injectables (ahead of insulin) and in many patients as a preferred second treatment option, after generic metformin. Finally, we think an earlier than expected launch of oral semaglutide with strong CV data gives Novo more time to establish the product ahead of Victoza, making it less vulnerable to Victoza generics (expected by 2023). Overall, we see Novo's $4 billion GLP-1 diabetes franchise growing to roughly $10 billion by the end of our 10-year explicit forecast period (up from our prior estimate of $6 billion). We assume that oral semaglutide will become Novo's biggest GLP-1 therapy, but that Ozempic could continue to draw later-stage patients (particularly if high-dose trial data are positive in 2020).

Partly countering our increased sales assumptions is a reduction to our gross margin forecast, as we expect Novo to see gross margins on oral semaglutide slightly lower than the firm's average gross margins. This is partly due to Novo's low-single-digit royalty obligation for oral semaglutide, the large volume of drug needed for oral administration, as well as pricing, as we assume oral semaglutide could be priced around $2,500 in the U.S., which would be a slight premium to net prices of other orals (we assume around $2,000) but a clear discount to Novo's current injectable GLP-1 therapies, Victoza and Ozempic (we assume over $4,000 per year). We still see competitive threats from Lilly, including detailed Trulicity data from Rewind CV outcomes study (June 2019), high-dose Trulicity data (2019), a GIP/GLP-1 launch (2023), and a potential oral GLP-1 competitor (entering phase 1), but we think oral semaglutide's profile is strong enough to open a significant door for Novo to penetrate an earlier-stage patient population. That said, Novo's GLP-1 franchise is becoming central to Novo's future (roughly half of our assumed 2027 sales after factoring in diabetes, obesity, and potential NASH sales), meaning that the competitive landscape for semaglutide is the biggest swing factor in our valuation.