Novo Nordisk (NVO) And The Global Diabetes Epidemic

What is one of the most serious health related epidemics affecting the world today? It’s not Zika Virus, Asian H5N1 bird flu virus, or even Ebola. It’s diabetes and is now considered a pandemic. According to the World Health Organisation there is a global diabetes epidemic:

  • The number of people with diabetes has risen from 108 million in 1980 to 422 million in 2014.
  • The global prevalence of diabetes among adults over 18 years of age has risen from 4.7% in 1980 to 8.5% in 2014.
  • Diabetes prevalence has been rising more rapidly in middle- and low-income countries.
  • Diabetes is a major cause of blindness, kidney failure, heart attacks, stroke and lower limb amputation.
  • In 2012, an estimated 1.5 million deaths were directly caused by diabetes and another 2.2 million deaths were attributable to high blood glucose.
  • Almost half of all deaths attributable to high blood glucose occur before the age of 70 years. WHO projects that diabetes will be the 7th leading cause of death in 2030.
Source: The World Health Organisation Fact Sheet (Reviewed June 2016)

The High Cost Of Health Care

Diabetes is becoming more common in the United States. From 1980 through 2014, the number of Americans with diagnosed diabetes has increased fourfold (from 5.5 million to 22.0 million). That number is somewhat understated as some 50% of cases are not diagnosed in a timely manner. With over 425 million people affected globally, diabetes has truly become a global epidemic. And if the situation doesn’t improve, there could be up to 600 million afflicted with the disease by 2035. Unfortunately, diabetes is a problem that not only concerns the health of the world but also presents a heavy (but avoidable) burden on the global economy.

Researchers in the U.K. have discovered that diabetes-related economic burden is present across all countries, whether classified as high, medium, or low-income economies. The disease has always been seen as a health challenge but how it impacts labour markets and the global economy has never been explored before in detail. According to the study, Americans are dealing with the highest diabetes-related lifetime healthcare costs of an estimated $283,000, an amount higher than what other countries at the same income levels have to pay for. However two thirds of new cases are from low- and middle- income countries and the poorest are the hardest hit by the economic burden of treating diabetes.

Diabetes comes in two forms: type 1 and type 2. Those with type 1 diabetes are born with the disease while those diagnosed with type 2 diabetes acquire the condition from poor lifestyle choices. Sophisticated laboratory tests are required to distinguish between type 1 diabetes (which requires insulin injections for survival) and type 2 diabetes (where the body cannot properly use the insulin it produces).Global estimates of diabetes prevalence for type 1 and type 2 do not yet exist. The majority of people with diabetes are affected by type 2 diabetes. This used to occur nearly entirely among adults, but now occurs in children too.

At the forefront in the war against diabetes is a major pharmaceutical company you may not have heard of is Norwegian Pharma giant Novo Nordisk (NYSE:NVO).

Novo Nordisk A/S NYSE:NVO

Novo Nordisk is a Danish pharmaceuticals company specialising in treatments for diabetes, obesity, haemophilia, and growth disorders. Diabetes is a growing epidemic and the company is well placed to benefit from this trend, as the world’s leading supplier of insulins. While maintaining its leading position in diabetes care, the company also aims to leverage its expertise in biologics and develop new therapeutics in the areas of hemophillia and obesity.

Novo operates mainly through two segments- Diabetes and Obesity Care; and Biopharmaceuticals. The Diabetes and Obesity Care segment covers insulins, glucagon-like-peptide 1, other protein-related products, oral anti-diabetic drugs and obesity. The Biopharmaceuticals segment handles the research, development, manufacture, and distribution of products within the areas of haemophilia, growth hormone, hormone replacement, inflammation and other therapy areas. Novo has production facilities in eight countries, and affiliates or offices in 75 countries. Novo Nordisk employs more than 40,000 people globally and markets its products in 180 countries The company is headquartered in Bagsværd, Denmark.

Diabetes treatments account for 85% of Novo Nordisk’s business. Novo Nordisk works with doctors, nurses, and patients, to develop products for self-managing diabetes conditions. Its current and future product portfolio includes:

Insulin Degludec (Tresiba)
An insulin for Diabetes mellitus type 1 and Type 2. It is a new-generation basal insulin with ultra-long duration of action of more than 42 hours administered through subcutaneous injection. Intended to offer a flexible treatment and having a good safety profile, it is approved in most major markets.

Glucagon-Like Peptide-1(GL-1) (Victoza). Victoza®
An injectable prescription medicine that improves blood sugar in adults with type 2 diabetes, and is used along with diet and exercise.

Liraglutide 3 Mg (Saxenda)
A once-daily human GLP-1 analogue. It serves as an agonist, intended for combination with lifestyle changes (including diet), to offer sustainable weight loss for people with severe obesity, including those at particular risk of developing diabetes.

Ryzodeg
Is another new generation insulin for type 1 and 2 diabetes. Ryzodeg is a soluble co-formulation of Tresiba and NovoRapid, and is a rapid-acting mealtime insulin. It is approved to offer patients reduced risk of hypoglycemia and is currently approved in the EU and Japan. The US FDA has recently approved Ryzodeg & Tresiba after reviewing the interim safety data of the ongoing CV outcome trial.

The Future Growth of Novo (NVO)

Novo spends 13% of sales on Research and Development annually. Its pipeline is promising with 17 indications in Phases 1-3, nine of which involve diabetes treatments.

Factors supporting ongoing volume growth for the $50 billion diabetes market (30% oral and 70% injectable products including insulin and GLP-1) include a 2% CAGR in the global diabetes population and am significant improvement in diagnosis and treatment. In China alone there are an estimated 100m diabetics (versus 30m in the US) of which only 10% receive any form of pharmaceutical treatment.

The U.S. is Novo’s largest market accounting for almost 50% of revenues. Analysts estimate the US basal market is growing 4-5% with Novo currently having 29% share and Levemir/Tresiba posting CER growth of 13%. Although the GLP-1 market only represents 4% of prescriptions it is growing at 30%, with Novo’s Victoza growing 15%. While market share is currently being conceded to Eli Lilly, Novo believes GLP-1/insulin combos and oral GLP-1 could eventually result in a 15-20% share. Novo’s leadership position in GLP-1 is secured by the promising profile of once weekly semaglutide as well as an oral formulation and exploration into diabetes, NASH and potentially Alzheimer’s. Saxenda is currently generating $300million of sales and continues to penetrate the US anti-obesity market. Saxenda is well on the way to achieving blockbuster status with a global roll out continuing (industry analysts see peak sales $1.7 billion).

In addition to the development of diabetes treatment pharmaceuticals, Novo Nordisk has been involved in the production of several lines of insulin pumps/pens for efficient delivery into the body and bloodstream.

Novo Nordisk benefits from strong fundamentals; a leading position in diabetes means strong top-line growth should be sustainable over the medium term, accompanied by operating leverage over the long term, low financial risk, and consistent de-equitization.

Analysts forecast a 2016-21E EPS CAGR 12% versus 9% for the EU pharma sector. Novo is favoured due to its relatively strong and sustainable growth underpinned by an undemanding valuation (18X 2017 EPS), especially if one believes Novo can achieve its long-term financial target of 10% EBIT growth per annum.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.