Novo Nordisk - Growth In 'Diabesity' Treatment (Part 2)

| About: Novo Nordisk (NVO)

Summary

Novo Nordisk may have broken through some of the diabetes clutter with a strong outcomes study for its GLP-1 agonist, Victoza.

It is attempting to go to two successively higher levels with a next-generation analogue of Victoza, called semaglutide.

This article reviews the different possibilities that semaglutide could bring to Novo Nordisk and concludes that this high-quality name has several attractive investment characteristics.

Yesterday, Seeking Alpha ran Part 1 of this two-part series. That article focused on Novo Nordisk's (NYSE:NVO) opportunity and challenges with a GLP-1 receptor agonist that it markets as Victoza for diabetes, as Saxenda for obesity and in the EU, combination with one of its modern insulins as Xultophy (FDA approval expected).

This article focuses on two potential versions of a next-generation, longer-acting analogue of Victoza (chemically, liraglutide). This lays out the possibility that the next-gen drug could be a blockbuster and maybe, in its oral version, a paradigm-changing mega-blockbuster. No guarantees even that this drug will even make it to market exist, though.

Introduction to semaglutide

The reason I think that NVO can go sustainably to a new, much higher level of sales, profits and perhaps even profitability per sales dollar is because of the two-step potential of semaglutide. This is a late-stage product that could come to market next year. Semaglutide, or sema, is a chemically-modified version of liraglutide, or lira, which is marketed by NVO both as Victoza for Type 2 diabetes and as Saxenda for obesity.

One of the chemical modifications to lira gives sema about triple the affinity to the GLP-1 receptor, allowing lower doses. Another modification gives sema a much longer life in the body, due to greater affinity to the blood protein albumin.

NVO has three programs underway for sema:

  • once-weekly injectable version for T2DM (Type 2 diabetes)
  • once-daily oral version for T2DM
  • once-daily injectable version for T2DM and weight loss

My overview opinion is first that the injectable versions are strong enough in conjunction with the rest of NVO's current product line and pipeline, to make the stock attractive. Second, success in the oral product could, I think, make the semaglutide franchise strong enough to provide true excess returns to NVO shareholders at the current price.

Background info on sema is available at NVO's pipeline web page.

The SUSTAIN program for once-weekly sema

I'll begin by examining in detail the clinical program for sema, known comprehensively as SUSTAIN, which involves 6 trials. These will form the basis of regulatory submissions, most likely this year for approval next year.

The most recent report was of SUSTAIN 5:

Bagsværd, Denmark, 23 February 2016 - Novo Nordisk today announced the headline results from the fifth phase 3a trial for semaglutide, SUSTAIN5. Semaglutide is a new GLP-1 analogue, which in the SUSTAIN trials is administered subcutaneously once weekly. The double-blinded trial investigated the efficacy and safety of 0.5 mg and 1.0 mg semaglutide compared with placebo as add-on to basal insulin alone or basal insulin in combination with metformin, after 30 weeks of treatment in 397 people with type 2 diabetes.

The trial successfully achieved its objective by demonstrating that people treated with 0.5 mg or 1.0 mg semaglutide achieved a statistically significant and superior improvement in HbA1c of 1.4% and 1.8% respectively, from a mean baseline HbA1c of 8.4%, compared with an improvement in HbA1c of 0.1% with placebo. Additionally, the end of trial insulin dose for people treated with 0.5 mg and 1.0 mg semaglutide was reduced by 10% and 15% respectively, compared with 3% for the placebo group.

So the trial easily achieved what it needed. It brought blood sugar levels down a lot while also allowing the insulin dose to be lowered - a big success. The degree of this success is impressive:

61% of the people treated with 0.5 mg semaglutide and 79% of the people treated with 1.0 mg semaglutide achieved the treatment target of HbA1c below 7% set by the American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD), compared with 11% of the people treated with placebo.

This is very nice.

And while NVO is not saying that this formulation is being developed by weight loss, the 1 mg dose met the threshold of 5% of body weight lost adjusted for placebo effect:

From a mean baseline body weight of 92 kg, people treated with 0.5 mg and 1.0 mg semaglutide experienced a statistically significant and superior weight loss of 3.7 kg and 6.4 kg respectively, compared with a weight loss of 1.4 kg for people treated with placebo.

So, no matter whether the indication is attained formally, doctors will know about this data and will take it into account when comparing sema to other once-weekly GLP-1 agonists that do not have this strong weight reduction data.

Side effects were, of course, more common in the sema group than for placebo, but were manageable.

Thus this study looks strong for efficacy with reasonable safety, and therefore for marketing approval.

Now let's look at the other completed SUSTAIN studies.

SUSTAIN 2

Bagsværd, Denmark, 17 December 2015 - Novo Nordisk today announced the headline results from the fourth phase 3a trial for semaglutide, SUSTAIN2...The double-blinded trial investigated the efficacy and safety of 0.5 mg and 1.0 mg semaglutide compared with 100 mg sitagliptin [Januvia], a once-daily DPP-IV inhibitor, after 56 weeks of treatment in 1,231 people with type 2 diabetes...

The results crushed Januvia, the advantage of which is that it is given by mouth rather than by injection:

The trial successfully achieved its objective by demonstrating that from a mean baseline HbA1c of 8.1%, people treated with 0.5 mg or 1.0 mg semaglutide achieved a statistically significant and superior improvement in HbA1c of 1.3% and 1.6% respectively, compared to an improvement in HbA1c of 0.5% with 100 mg sitagliptin.

69% of the people treated with 0.5 mg semaglutide and 78% of the people treated with 1.0 mg semaglutide achieved the American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD) treatment target of HbA1c below 7% compared with 36% of the people treated with 100 mg sitagliptin.

Furthermore, from a mean baseline body weight of 89 kg, people treated with 0.5 mg and 1.0 mg semaglutide experienced a statistically significant and superior weight loss of 4.3 kg and 6.1 kg respectively, compared with a weight loss of 1.9 kg for people treated with 100 mg sitagliptin.

So much for Januvia in comparison with sema.

SUSTAIN 4, as discussed in November

This compared sema to once-daily insulin glargine, presumably Lantus, the blockbuster Sanofi (NYSE:SNY) product. Results were favorable except for nausea, with results favoring sema in blood sugar reduction, weight loss (vs. the expected mild weight gain with Lantus) and less hypoglycemia.

NVO is also coming after Lantus with its own once-daily modern insulin product, Tresiba. Tresiba has been developed as a stand-alone product, and also with a short-acting insulin and separately with liraglutide.

SUSTAIN 3

Reported last September, this demonstrates superior efficacy to Bydureon, a once-weekly GLP-1 agonist:

The trial achieved its objective by demonstrating that from a mean baseline HbA1c of 8.4%, people treated with 1.0 mg semaglutide achieved a statistically significant and superior improvement in HbA1c of 1.5% compared to the improvement in HbA1c of 0.9% with 2.0 mg exenatide once-weekly.

66%* of the people treated with 1.0 mg semaglutide achieved the American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD) treatment target of HbA1c below 7% compared with 40% of the people treated with 2.0 mg exenatide once-weekly.

Furthermore, from a mean baseline body weight of 96 kg, people treated with 1.0 mg semaglutide experienced a statistically significant and superior weight loss of 5.6 kg compared with a weight loss of 1.8 kg** for people treated with 2.0 mg exenatide once-weekly.

It would have been nice to have seen a comparison against a stronger once-weekly entrant such as Trulicity.

SUSTAIN 1

From last July, the results were strongly positive for use of sema as first-line therapy in drug-naive T2DM patients:

74% and 73*% of the people treated with 0.5 mg and 1.0 mg semaglutide, respectively, achieved the American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD) treatment target of HbA1c below 7% compared with 25% of the people treated with placebo.

Furthermore, from a mean baseline of 92 kg, people treated with semaglutide in both doses of 0.5 mg and 1.0 mg experienced a superior weight loss of 3.8** kg and 4.6*** kg, respectively, compared with a weight loss of 1.0 kg for people treated with placebo.

In the trial, semaglutide appeared to have a safe and well-tolerated profile. The most common adverse events were related to the gastrointestinal system, primarily nausea, were comparable to Victoza® in similar trials and diminished over time. The discontinuation rates due to all adverse events for 0.5 mg and 1.0 mg semaglutide were 6% and 5% compared to a discontinuation rate of 2% for placebo.

The one modest negative was that here, the maximum dose of sema did not approach a 5% placebo-adjusted weight loss. Otherwise, the low rate of discontinuation may make sema an acceptable first choice for patients willing to inject themselves.

There is one SUSTAIN study that has results pending.

SUSTAIN 6

This is a comparative study of sema versus placebo regarding major adverse CV events, in other words a safety study. This is studying both the 0.5 and 1.0 mg doses of sema. The patient population is diabetics of at least 50 years of age with clinical evidence of CV disease, or 60+ year olds with subclinical evidence of CVD.

NVO has informed us to expect results on this important study by June.

This is a smaller study than the positive LEADER outcomes study for Victoza (lira), for which many details will be released in June.

It may or may not be appropriate to expect that SUSTAIN 6 will be overtly positive enough to have the 95% confidence intervals all below 1.0, or neutral. From the FDA's standpoint, evidence that there is no adverse CV safety signal should be enough, in my expectation, for approving sema for marketing.

Sema might be viewed as a more potent, longer-acting lira, then if Victoza's LEADER study that showed a reduction in major adverse cardiovascular events, or MACE, is sufficiently robust in its positive results, doctors may expect that a trend toward superiority of sema versus placebo in SUSTAIN 6 could lead them to (off-label) use sema for MACE prevention. If the SUSTAIN 6 results are strong enough, then off the bat, sema might have the MACE prevention indication when marketing begins - which would be a huge accomplishment, probably unprecedented for any drug. If not, then I would expect NVO to institute a larger-scale study to gain this indication. (Of course, I cannot speak for NVO.)

Overall, I believe that the odds favor a successful introduction of sema in its once-weekly form, probably in the second half of next year. If that occurs with promising outcomes data from SUSTAIN 6, then my expectation is to expect strong sales and EPS growth from NVO for years to come, probably enough to fully justify the current P/E (around 27X TTM EPS).

What about once-daily sema for injection?

I speculate that this may be eligible for limited studies for T2DM, given its similarities to once-weekly sema given s.c. One Phase 2 study of this version of sema in diabetics is scheduled to be completed this October; another in obesity is scheduled for completion in April 2017. I cannot guess how quickly the company can move after that to get to a marketed product. Presumably the doses would be in the 0.075-0.15 mg range, to be given once daily.

Obviously, this has been a secondary priority for NVO, but one that may help sales. It's something to watch.

Interim summary

It's my view that assuming nothing bad comes out of the outcomes trial for weekly semaglutide injections, this product will come to market and be treated by many or most high prescribers as if it were Victoza with a much longer duration in the body and somewhat greater potency. I therefore think that it is likely to extend and largely replace the Victoza franchise, with much longer patent protection and many years of sales growth ahead.

So I think that as discussed in my prior NVO articles, both Part 1 of this article and last month's articles on NVO, the existing product line and expected addition of weekly sema make NVO attractive despite its 27X P/E.

That would be assuming ordinary progress in the pipeline.

However, there may be a mega-blockbuster there, namely oral semaglutide. If this can reach the market, and either have its own positive CV outcomes data or at least be treated by prescribers as likely to have all the benefits of Victoza without the injection, I think we might have an unusually strong success that could take NVO to another level of profits while the stock could maintain a high multiple.

Assessing oral semaglutide

Searching Clinicaltrials.gov for oral semaglutide gives 9 completed studies, one in progress and one planned. The one in progress is PIONEER 3, a Phase 3 study that compares oral sema to Januvia. The planned study is for CV safety. Some of the background info on this novel drug was covered last November by PLM Investments on Seeking Alpha in an article titled Novo Nordisk's PIONEER Trial Will Establish A New Frontier In Oral Anti-Diabetics. This is a fact-filled article that goes into several aspects of the technology breakthrough and plans for the comprehensive program for this drug. It also deals with the main source of the enabling technology, Emisphere Technologies (OTCPK:EMIS). The author was long EMIS, but I have no position in EMIS and have no opinion about that stock. I'll try not to either assume that you are familiar with the article or to go into as much detail as it did.

I will pick up the oral sema story this year, though.

Moving along to this year, NVO issued this press release in February:

Novo Nordisk announces positive results for phase 2 trial with oral semaglutide in people with type 2 diabetes

This basically confirmed that even the lowest daily dose of oral sema, 2.5 mg, lowered blood sugar better than placebo. Thus the study met its primary endpoint. There was also similar and substantial weight loss associated with the highest oral dose, 40 mg, as with the 1 mg dose of s.c. sema given once-weekly.

While the press release is cautious and talks about discussing the program for oral sema with the regulatory authorities before making a go-no go decision, the annual report is more definitive.

Nonetheless, there may be technical issues here that we do not know of. How do we assess the chances that oral sema will come to market timely, or ever?

I cannot say. I am optimistic, though.

So I will speculate on oral sema's potential, since it may occur by 2019-20.

Guessing the market potential for oral sema

The World Health Organization has estimated there are 440 million T2DM patients worldwide, up at a CAGR of 4% or so for the past 35 years. If that continues, then by the time oral sema would be getting going in multiple countries, the count would be 500 million or more and rising. If 15% of them are in richer countries, that would be 75 million potential users, not counting obese non-diabetics if oral sema works for obesity (as I expect it would). Since GI intolerance is an issue, let's guesstimate that 80% of those 75 million patients could tolerate oral sema, leaving a pool of (say) 60 million patients.

If oral sema is a breakthrough, then it could perhaps sell worldwide in developed countries for an average annual cost of $3000. If 1/6 of those 60 million patients went and stayed on the drug, that would mean 10 million X $3000 or $30 billion in annual revenues from this drug.

My understanding is that EMIS would receive very little if anything in royalties (correct me if I'm wrong here), so NVO would receive all these revenues except perhaps in Japan or some smaller rich countries where it may need to have another company promote the product.

Clearly that sort of success would take NVO's profits and dividend stream to a much higher level.

Risks

This article is dealing with an unapproved product, or technically three versions of the same unapproved compound. So it all could come to naught.

Conclusion - does sema make NVO a 'buy?'

As readers know, I speak only for myself, as I am not an investment adviser. My judgment is that sema's potential as a once-weekly injectable drug, with at least the aura of Victoza's success in LEADER in preventing major adverse CV events, and possibly a positive outcomes study from SUSTAIN 6, is likely and strong enough to add to the rest of the (generally strong) NVO story to make the stock attractive. On that basis, I look at NVO as a strong buy-and-hold; and watch the news flow.

Adding the potential for oral sema, which is one of these possibilities that will require patience amongst stockholders, I find NVO a very attractive stock. So even though I am not a big fan of the general stock market's (NYSEARCA:SPY) valuation, I like NVO a lot on all time frames and have thus overweighted it within the equity part of my portfolio.

Disclosure: I am/we are long NVO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Not investment advice. I am not an investment adviser.