Novo Nordisk obesity feast no longer a free lunch
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
LONDON, July 18 (Reuters Breakingviews) -Novo Nordisk NOVOb.CO is going to have to work hard to justify its bulging valuation. The $603 billion obesity drug maker’s shares have more than trebled since 2021 thanks to insatiable appetite for its weight-loss drug. But with rivals like Pfizer PFE.N and Roche ROG.S working on their own breakthroughs there’s little room for error.
The Danish pharma group run by Lars Fruergaard Jorgensen is in a sweet spot with Wegovy. The so-called GLP-1 drug, which helps some patients lose up to 20% of their body weight, has seen sales rise fivefold over the past two years to $4.5 billion in 2023, thanks to booming demand and a lack of rival products. Alongside a similar treatment from Eli Lilly LLY.N, Wegovy enjoys a duopoly in one of the hottest areas in medicine.
The big question is how long that can continue. Already Eli Lilly’s Zepbound has proven more efficient at lowering weight than Wegovy. The latter will lose patent exclusivity in 2031, allowing cheaper copycat drugs to hit the market and bringing down prices. Wegovy sales will peak in 2030 and decline rapidly after that, according to Visible Alpha estimates.
Novo Nordisk is working on replacement drugs. Its next big hope is Cagrisema, which is expected to be more effective, and another rival obesity drug Amycretin. Beyond that, it hopes the compound in Wegovy, called semaglutide, can be used to fight Alzheimer’s.
Still, a lot of hope is now baked into Novo Nordisk’s share price. Including $8 billion of net debt, the company is worth $611 billion. It still makes most of its money from diabetes drugs, which are also growing quickly. Assume that business and any other non-obesity treatments are valued on just over 12 times forward sales, Novo’s current multiple, and it’s worth just over $438 billion, as per Visible Alpha estimates.
That suggests the obesity business has a valuation of $172 billion. But analysts at Berenberg estimate the present value of Wegovy’s cash flows today is just $57 billion. If so, around two-thirds of the worth of the obesity business derives from its pipeline of unproven drugs. Any upset, for example if Cagrisema is less effective than hoped, could have a big impact on Novo Nordisk’s share price.
Furthermore, growing competition may threaten Novo Nordisk and Eli Lilly’s cosy duopoly. According to Iqvia, a medical consultancy, there are now 123 drugs in development for obesity. Rivals including Pfizer, Roche and AstraZeneca AZN.L are all looking to get a slice of the market that Jefferies analysts reckon could be worth $100 billion in annual sales by 2031. Given the likely huge burden to the public purse, governments have good reason to ensure more drugs are available, and prices come down. Novo Nordisk will have to fight to keep its prime position at the obesity trough.
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CONTEXT NEWS
Roche said on July 17 that a second drug candidate from its purchase of Carmot Therapeutics yielded positive results in an early-stage trial, as the Swiss drugmaker asserted itself as a late contender in the race to develop obesity drugs. Novo Nordisk’s shares fell nearly 4% on the news.
Pfizer said on July 11 that it plans to move a reworked, once-a-day version of its weight-loss pill danuglipron into clinical trials later this year.
The new drug is part of the second generation of weight-loss pills under development by companies including Eli Lilly and Novo Nordisk that will offer patients a more convenient alternative to injections.
Graphic: Sales of obesity drug Wegovy are expected to rise and fall fast https://reut.rs/467mWE8
Editing by Neil Unmack and Oliver Taslic
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