Novo Nordisk A/S (NOVO-B) is a research-oriented healthcare company engaged in the discovery, development, manufacture, and marketing of pharmaceutical products. It was founded in 1925 and its headquarters are in Bagsvaerd, Denmark.
Novo operates in two distinct segments: a) Diabetes and b) Biopharmaceuticals. The Diabetes Care Segment offers insulin, Glucagon-Like Peptide and related delivery systems, as well as oral antidiabetic products. The Biopharmaceutical segment provides products and applications in the areas of haemostasis management, growth hormone therapy, hormone replacement therapy, and inflammation therapy.
The company operates in Europe (which accounts for 25% of sales), America (44%), Japan, China, and Korea (16%) and in other countries (14%). In recent years Novo collaborated with VLST Corporation, a Seattle-based biotech start-up, to develop a platform in the area of autoimmune and inflammatory disorder management. The results obtained were encouraging; however, the future of VLST is uncertain. The developments may therefore in-licensed with major pharmaceuticals such as Novo Nordisk, Pfizer, Roche, all acting in the same field.
At the upcoming investors’ day on 3 December 2013, the company is expected to a) disclose further information about the growth in the insulin market over the next 5 to 10 years, b) provide an update on the next-generation of diabetes treatment – combining insulin with GLP-1, and c) provide guidance as to the direction of the pharmaceuticals market in the long term. This will be an interesting rendezvous for investors as it will give clear confirmation of the upside potential of the company’s business.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Novo Nordisk has a solid product pipeline with a number of excellent opportunities to expand its existing business,
- Operating profit growth in the region of 12 to 15% p.a. is expected, and it’s the company’s aim to increase this figure,
- Novo is the best positioned company in the European pharma segment – with high barrier to entry insulin products and strong EM exposure,
- Novo has a market share of + 50% in the global insulin market with strong underlying growth dynamics,
- The robust insulin market should drive EPS growth in excess of 15%, while the other sector (Biopharmaceuticals) is around 8%,
- Based on 2015 EPS figures, the stock is trading at a P/E of 22x, providing an upside of about 40% which is well in excess of the competition.
Weaknesses:
- A Danish foundation owns about 26% of Novo’s shareholder capital; however, the same institution represents as much as 71% of the voting shares,
- Incremental competition in the company’s key activity areas is high, especially in the US market,
- A slowdown in the insulin and in the biosimilar insulin market will impact the company severely.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Average |
| Expected growth: | Well above average |
| Long term value creation: | Outstanding |
| Positive competitive advantage: | Excellent |
| Management excellence: | Positive |
| Financial strength: | Well above averag |
| Investment orientation: | Group “Best-in-Class”
Healthcare services, Healthcare, |
Price ranges:
| Buy: | Only for customers |
| Sell | Only for customers |
| Stop-loss: | Only for customers |
| Fair-value: | Only for customers |