1/ $Novo-Nordisk A/S(NVO)$ was once a market darling, now everybody hates it.
It dominates the global insulin and weight-loss drugs markets.
Even if it delivers a high single-digit annualized growth in the next 5 years, the stock will double.
Here is why NVO is an asymmetric opportunity: 🧵
2/ NVO was nearly trading at 3x of today's valuation in January.
What changed?
Nothing more than the sentiment.
Let me explain:
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3/ NVO still dominates the global diabetes market.
It currently controls over 34% of the global diabetes treatment market, up from 30% in 2021.
Even if the growth in the weight-loss segment stops, this segment is large enough to support high-single-digit long-term growth.
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4/ What about the competition from $Eli Lilly(LLY)$ in the GLP-1 market?
NVO's market position remains strong.
Despite all the narratives of falling behind in competition, NVO actually grew its market share in the GLP-1 category since 2022.
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5/ NVO has four blockbuster weight-loss drugs in the pipeline.
- Cagrisema: Zepbound rival
- Oral Semaglutide: Pill version of Wegovy
- Amycretin: Next-gen oral weight loss drug
- NN9662: Tri-agonist weight loss drug
They are all superior to LLY pipeline drugs.
Let's dig:
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6/ Cagrisema led to 22% weight loss after 68 weeks, while investors expected 25%.
This is largely because they consider it a rival to Lilly's next-gen weight loss drug Retatrutide, which led to 24% weight loss in 48 weeks.
But Cagrisema is not a Retatritude rival, it mimics two hormones like Zepbound while Retatritude mimics three.
Novo's Retatritude rival is NN9662, and it's vastly superior.
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7/ NVO licensed NN9662 from a Chinese bio-tech firm, which originally named the drug Ubt251.
It mimics GLP-1, GIP, and GCG hormones just like Lilly's retatritude, but it's superior.
Retatritude led to 17% weight loss in 24 weeks, while experimental Ubt251 led to 15% in just 12 weeks!
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8/ Last but not least, oral weight loss pills.
Eli Lilly announced last week that its pill led to 8% reduction after 40 weeks in a Phase III trial.
Novo's oral semaglutide, also at Phase III, leads to 17% weight reduction after 68 weeks. Again superior.
Its oral Amycreting, which Lilly has no peer of, led to a 22% reduction after just 36 weeks.
Novo wins again.
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9/ The stock got hammered because the management lowered the guidance for the full year 2025.
As much as the slowing sales, the USD's loss of 10% against the Danish Krone contributed to this revision.
Anyways, this growth prospect is enough for the stock to double from here.
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10/ Let's run the numbers.
Here are the assumptions:
- 15% annual growth for the next year.
- Then the growth converges to 3% in the next 9 years.
- Operating margin remains the same.
- ROIC decreases from 25% now to 15% in the terminal.
- Marginal tax rate is 25%.
- The cost of capital is stable at 7%.
Here is what we get:
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11/ The current price indicates 64% undervaluation.
This is a huge margin of safety.
There is a possibility that the fair value is even higher than this as our model only assumes 8% annual growth for the next decade.
This is a very low bar for NVO.
It's a great opportunity.
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