EUR 850.00 For Business Accounts Only

Morningstar | Novo Nordisk Shares Remain Fairly Valued; GLP-1 Franchise Appears Well Defended

Novo Nordisk's GLP-1 strength countered restructuring costs in the third quarter, allowing management to maintain a steady operating profit growth forecast for the year. We're not making any significant changes to our model or fair value estimate as a result, and we continue to view shares as fairly valued. Even though Lilly's GIP-GLP-1 is now emerging as an injectable competitor to Novo's GLP-1 franchise, with a potential launch in 2023, we think Novo is well-positioned with its oral semaglutide (launching 2020), underlying strong incretin-based therapy demand, and potential for high-dose (2.4 mg) Ozempic efficacy to defend the firm's injectable franchise (STEP 2 data expected in 2020). Novo maintains a wide moat, but we note that the firm's exposure to GLP-1 is increasing as Victoza and Ozempic (and soon oral semaglutide) grow strongly relative to pressured insulin and biopharmaceutical businesses; the GLP-1 franchise was 23% of Novo’s total sales in 2017 and should grow to 38% of total sales by 2027.

We're reassured by Novo's continued efforts with both incremental and more significant innovation in the GLP-1 space, but we remain cautious on biopharmaceutical potential. Ozempic's launch has allowed Novo to stabilize share on par with Lilly in the U.S. GLP-1 market, and overall demand for GLP-1 therapies in the U.S. continues to grow at a rate above 20%. While Lilly is moving forward with studies of a competitive GIP-GLP-1 product that looks superior to the firm's own once-weekly Trulicity and potentially to Ozempic as well, we expect Novo's higher-dose version of Ozempic could allow Novo to top its previous efficacy levels. In addition, a new oral GLP-1 in phase 1 testing could either improve efficacy or reduce manufacturing costs, as it looks effective at lower doses (phase 1 data should be available in 2019). Finally, Novo also has a dual GIP/GLP-1 and a triple GIP/GLP-1/GCG in phase 1 in obesity. In biopharmaceuticals, a once-weekly growth-hormone disorder product, somapacitan, now has phase 3 data in adults and phase 2 data in children, showing a significant convenience benefit to Novo's once-weekly Norditropin, but we're still skeptical of the ability of this product to boost franchise growth in an increasingly cost-conscious payer environment. In hemophilia, Novo's marketed products are generally behind the curve, but if details surrounding recent positive phase 2 data for concizumab in non-inhibitor patients are strong, this could compete with Roche's recently launched subcutaneous therapy Hemlibra.

As we discussed in our Oct. 4 note, Lilly recently presented phase 2b GIP-GLP-1 receptor agonist (LY3298176) data that surpassed Trulicity's efficacy, but also showed the potential to surpass the efficacy of Novo's Ozempic, the best-in-class option. LY3298176 was tested at several doses and showed A1C reductions of 1.6%-2.4% at the 5 mg-, 10 mg-, and 15 mg-doses, as well as weight loss of 4.8-11.3 kg at these doses. Trulicity looked weak in comparison, with a 1.1% A1C reduction and 2.7 kilogram weight loss in its arm of the study. For reference, Novo's Sustain trials for Ozempic (injectable semaglutide) generally showed A1C lowering around 1.5% and weight loss between 5 and 6 kilograms, and the Sustain 7 trial specifically showed superiority on both of these measures to Lilly's Trulicity. Novo's oral semaglutide has shown slightly lower efficacy than Ozempic (3-5 kilograms of weight loss and 1.1%-1.5% A1C reductions), but proved superior to both Victoza and Trulicity (at the highest 14 mg-dose tested in Pioneer 4 and Pioneer 10) on both of these measures.