Novo Nordisk

Company Update:
Two developments that add insult to Novo’s injury:

1/ Roche’s weight-loss/diabetes candidate, enicepatide, demonstrated HbA1c (a measure of blood sugar levels) reduction of 2.65% in a 48-week phase II trial for diabetes patients and reported a 15.5% mean weight-loss in those patients without a plateau. Note that weight-loss in diabetic patients is generally lower than that in non-diabetic ones.

2/ Viking Therapeutics announced that its once-weekly weight-loss injection, VK2735, effected 18-19% weight-loss with some its higher doses in 21 weeks, and in the 12-week maintenance phase thereafter, every-other-week dosing helped people retain 90% of their weight-loss and monthly dosing aided maintenance of 85% of weight-loss. While Viking’s share price soared c.34% today, Roche’s shares are surprisingly down c.1% (as write).

Overall, while data from both the firms look strong, Roche’s diabetes efficacy figures are better than the corresponding figures from Novo’s semaglutide and Lilly’s tirzepatide in their phase III trials. Future competition for the duopoly of Novo and Lilly is now not far, but Novo’s valuation levels are already grim, which is why there isn’t a major negative reaction to its share price.

Expert Opinion:
The reaction to Novo's CMD on Monday was really excessive in my view. We don't think there were massive earnings downgrades after all, at least not based on the guidance of NOVO. We had hoped that the CMD would actually be a positive catalyst ad were we wrong. The news that the group could get a full listing in the US, the positive comments on the potential of pills (capturing 50% of the market) or good results on Cagrisema were completely disregarded by the market. 

Competition is increasing as expected (as demonstrated by Roche and Viking news) but we believe this was already largely expected. We still remain convinced that Novo's valuation is simply too low but I fail to see any catalyst over the short term that will trigger a rerating.   

At this valuation level (PE27 of c11x), Novo is a buy and hold that will yield you almost 5% in dividend for an earnings growth that should be at least in line with that of the sector. 

Not e that the X-read is obviously positive for Roche. We still like Roche and our reduce rating is only due to the lack of upside. Roche remains a still fundamentally excellent company which still trades at a discount to Astra or Novartis. 


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