Novo Nordisk’s trial investigating the ability of oral semaglutide (the active ingredient in the weight loss jab Wegovy) to slow the progress of Alzheimer’s disease has failed to demonstrate any clinical benefit. The program is to be discontinued.
The shares were down 8.4% following the announcement.
Our view
Novo Nordisk has found good news hard to come by this year, with a failed clinical trial of its lead GLP 1 molecule the latest disappointment. This will be a blow for patients hoping for relief from this cruel disease, but we have always seen this as blue-sky hope rather than a core driver for the company. Nonetheless investor sentiment took another substantial hit on the day.
We still think the company has a very large opportunity ahead, but new CEO Mike Doustdar has his work cut out if he’s to win back investors’ trust. Diversifying Novo’s therapeutic focus and regaining the upper hand in bringing differentiated anti-obesity products to market are targets we’d like to see prioritised.
Acquisitions offer a potential shortcut, but competition to bolster pipelines in the sector is fierce. Novo’s recent attempt to acquire Metsera is a prime example. The prospect of a once-monthly weight-loss medicine was tantalising enough prospect for rival Pfizer to outgun Novo in a bidding war, but $10bn is a hefty price for a company with no revenues.
In the United States, Novo’s been losing market share in the all-important GLP1 class of drugs for diabetes and weight loss. Competition is also starting to hold back growth in international markets. With rival Eli Lilly’s competing product comparing well on both price and efficacy, that’s perhaps no surprise
We’re encouraged by recent distribution deals. Novo’s also edging ahead in the race to bring an oral candidate to the market in the US. That’s another opportunity to claw back some ground, but approval still isn’t guaranteed. There’s plenty of work still to do to recapture the high ground.
Downwards pressure on pricing is another headwind to contend with, but a recent deal struck with the US authorities doesn’t look to be too punishing, while the addition of Medicare coverage has the potential to significantly expand the addressable market.
With the valuation under pressure, Novo’s dividend yield looks more meaningful than it has for a while. But share buybacks have been placed on pause following a period of high investment, and no payouts can be assured.
There’s not much growth priced into the valuation. If the new CEO can steady the ship, there could be some significant upside on offer. But despite the weakness in the valuation, the shares are still proving sensitive to disappointments, as shown by an oversized reaction to the bad news on the Alzheimer’s trial. With plenty of execution risk ahead, investors may still need to stomach some volatility.
Environmental, social and governance (ESG) risk
The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, Novo Nordisk's management of ESG risks is strong.
Executive pay is linked to both financial and non-financial targets, including sustainability targets, though it's unclear exactly how the two are linked. Novo Nordisk's product quality and safety programmes are adequate. The company also addresses pricing and access to medicine in emerging markets and the US. In general, Novo Nordisk has strong policies and programmes to address business ethics issues, but fails to address anti-competitive practices and has been implicated in alleged price fixing and questionable promotional activity controversies.
Novo Nordisk key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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