This drug maker is growing at double-digit rates, forecasted to expand almost 29% this quarter and 20% in the following three months.
Novo Nordisk A/S (NVO)
From Global Investing
Novo Nordisk A/S (NVO) was formed by the merger of two Danish firms specializing in making insulin for treating diabetes. This is still the main earner for NVO, which accounts for more than a quarter of the world market for treating this disease. The company also has a history of supplying other products like human growth hormone and products for hemophilia, but it is unusual among drug majors as being a real specialist.
Currently, most diabetics still inject insulin, but there are new systems for controlling blood sugar using biologically produced longer lasting proteins which can be taken orally, called glucagon-like peptide agonist1. They work to reduce the sugar in the bloodstream, which can cause sickness and death to diabetics from blocked arteries, blood clots, and high blood pressure which can lead to heart attacks and strokes. Here, NVO is a major player, but faces global competition because the price of GLP 1 is much higher than that for insulin.
Adding to the boom in GLP-1 is the fact that it also works to help weight-loss, and the NVO version, Victoza, has particular appeal because it doesn’t have some of the dangerous side-effects of rival versions. That makes it a likelier winner than other versions which increase cardio-vascular risks for dieters and diabetics both. Victoza is unique in this respect, and that is why it is on track to gain a market of $2.7 billion in 2016. It is also a favorite way to treat early diabetes, before it becomes full-blown.
While the global market for patented drugs has been suffering year-to-date because of price gauging by some smaller firms and revelations of misdeeds by other drug majors in paying off doctors for prescribing their products, the Danes have not been implicated in any of this. However, the political reaction to the scandals hurt even legitimate vendors of ethical drugs.
Hurting NVO has been the high costs it incurred in boosting its Victoza marketing and advertising to bring on its GLP 1 drug, a contrast to the steady and regular growth of its classic insulin market as people get older, richer, and fatter around the world.
In 2016 NVO increased its ad spending by 195%, the world’s 4th largest spending increase for any company, according to Ad Age magazine (as quoted by website fiercepharma.com). NVO has also spent to add more drug reps to sell to general practitioners and diet doctors, not just the endocrine specialists it used to focus on.
This, coupled with a strong dollar, has hurt its global prospects, but NVO will overcome the negatives. Its shares are down from the start of the year’s $57.30, mostly due to currency changes. I think Victoza will be a huge winner and boost NVO’s stock.
Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480, July 3, 2016