Share Prices & Company Research


18 January 2023

Novo Nordisk

Let’s not sugar coat it, 2022 was, for the most part, a dreary year for markets across the world. COVID-19 and the war in Ukraine continue to tragically claim many victims while also wreaking economic havoc to such an extent that we will likely be dealing with the fallout for years to come. However, there have been a few beacons shining in the night, guiding us through the darkness. Companies such as Novo Nordisk in the healthcare sector have performed excellently; it has seen its share price climb by almost 26% despite the challenging environment. A primary driver of growth for the company has been its product line that targets diabetes care and obesity. It has been able to increase sales in this department year-on-year while carving out an ever-larger share of the market. While it was not the only company to have experienced growth last year, what makes Novo Nordisk particularly interesting is how it has used the revenue generated by its obesity care treatments to diversify and expand its product range with a focus on rare and chronic diseases. The company’s investment in its pipeline of new drugs has put it in a strong position as we enter 2023.
You can’t write about Novo Nordisk without drawing attention to the astounding success of its diabetes and obesity treatments. These are likely to continue to be key drivers of structural growth for the company given that obesity rates around the world are skyrocketing while the prescription industry that treats the condition is still in its infancy. Semaglutide, a drug that helps increase the body’s production of insulin, accounts for around 70% of Novo Nordisk’s projected sales until 2030. This treatment is, and will remain, the cornerstone of Novo Nordisk’s success as the number of people living with diabetes is expected to rise to 784m globally by the year 2045. The company controls 46.8% of the global insulin market and 56% of the global GLP-1 (drugs that help regulate glucose production) market and as such is set to substantially benefit from the increasing prevalence of diabetes. Despite this pre-existing dominance, it has been able to increase its market share in diabetes treatment by 1.7% over last year with sales growing by 16% and 72% of sales in the US consisting of products released since 2015. The company’s consistent investment in new products is paying off, and as a result it is not only benefiting from the expansion of the overall market but are also demonstrating its ability to stay ahead of the competition.
Novo Nordisk’s flagship weight loss drug, Wegovy, works in hand with its diabetes treatments and is based on the same underlying drug, Semaglutide. The drug also targets sectors of the brain that are responsible for a patient’s appetite. Once again, this market has huge growth potential with only 10% of the 764m people living with obesity globally currently seeking treatment. 75% of patients who are prescribed Wegovy are new to anti-obesity medication and, given that the drug helps people to lose up to 18.2% of their body weight, there is enormous growth potential here for the company. The obesity market is indeed experiencing a surge in growth and perhaps we shouldn’t be surprised at this given that people have been confined to their homes for much of the last two years. The market has grown 110% since August 2019 and Novo Nordisk has captured 86% of this growth due to the effectiveness of this drug. Once again, Novo Nordisk is not simply benefiting from the expansion of the sector, its products are driving this expansion.
You might be thinking that it is a little concerning for a company to have 70% of its predicted sales dependent on one drug, and this would be a fair criticism. However, we must also recognise that Novo Nordisk is investing heavily in the diversification of its product line. It recently acquired the biopharma firm Forma for US$1.1bn in order to increase its exposure to treatments for sickle cell disease and rare blood disorders. Among the most promising drugs acquired by Novo Nordisk through the acquisition is Etavopivat, a drug that hopes to significantly boost the health of patients red blood cells and as such could be of great benefit to those suffering with sickle cell disease. During the first nine months of 2022, the sale of Novo Nordisk’s rare disease treatments rose by 2%. The company is also now investing heavily into other chronic illnesses such as cardiovascular disease (CVD), seeing this in particular as a prime opportunity as 70% of people living with diabetes also suffer from CVD, meaning the patients are substantially more likely to have been exposed to other medications manufactured by Novo Nordisk and so are more likely to have fostered a relationship with the brand.
It has been an excellent 12 months for Novo Nordisk, but more importantly it has successfully set it up for what should be a long period of growth and success. While many companies have struggled this year, Novo Nordisk has made the most of the structural opportunity that has presented itself. It is using the profits generated by its obesity and diabetes treatments to diversify the business and has pursued exciting mergers and acquisitions opportunities, such as the one offered by Forma, to expand the pipeline of new potential drugs. All in all, the positive performance generated by Novo Nordisk was a welcome Christmas present to many of us last year.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
Novo Nordisk
We offer complimentary investment publications produced by our in-house Investment Research team. Please click here to view our range.