Novo Nordisk - Another Apple 2013 Story? New Highs Ahead?

| About: Novo Nordisk (NVO)
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NVO has had a rough time of it over the past year, for good reasons.

These reasons include pricing pressures in the US, decreased multi-year growth projections by management, and management turmoil.

Perhaps, at this point the company's weaknesses are reflected in the stock price and its strengths may not be fully appreciated.

This article lays out in some detail the main ways that I see NVO potentially regaining its status as an important growth stock, principally concentrating on its diabetes franchise.

Evolving trends in thought leaders in diabetes may hold the key to NVO's possible resurgence; for now, I'm holding a core position in the stock but not buying more.


Novo Nordisk A/S (NYSE:NVO), formed by merger of two neighboring Danish companies formed in the 1920s to commercialize insulin, was a bull market star until last year. It waited until I bought in on exciting news out of the company to begin a rather sickening descent, giving me one of my worst losses on a stock in decades of investing. I stuck with NVO most of the way down from an entry price a year ago around $55 to its current price around $34, though I did sell some to buy Celgene (NASDAQ:CELG) and some other stocks that have, in fact, risen.

However, I'm hopeful that as 2017 moves along, we will look at NVO as mostly having been hit by a semi-perfect storm of pharma price deflation, plus other factors that are now almost all "in" the stock.

Introduction to NVO

An old-line diabetes company with about 20% of revenues coming from hemophilia and growth hormone products, NVO enjoyed a tremendous run leading to its 2015 peak around $60. After stabilizing for about a year, the company announced a reduction in major cardiovascular events with one of its major growth drugs, Victoza. In this regard, it joined Eli Lilly (NYSE:LLY) and its Jardiance drug in becoming the first two diabetes drugs to achieve this. As I explained in my initial articles on NVO, this was important because, even today, a mainstay of diabetes treatment, the sulfonylurea class, carries a warning about cardiovascular risk. This is because of an adverse study, the UGDP, on a first-generation SU from the 1970s. Yet the FDA and the pharma industry were just fine with this, and no follow-up proof of safety was required for the many SUs that subsequently received marketing approval from the FDA.

What the FDA eventually got around to doing, though, was require a CV outcomes trial of a new diabetes drug to, in essence, show that if it was unsafe from a MACE standpoint, it wasn't "too bad," just mildly bad or something like that. I am being serious, not joking. The basic thinking goes something like this: diabetes causes two types of vascular disease, microvascular (small vessel) and macrovascular (large vessel). When CVOTs are performed, they pretty much only relate to macrovascular complications. Yet it is an article of faith, supported by some evidence, that lowering blood sugar in diabetics diminishes the risk of microvascular problems.

So, if a drug lowers blood sugar in diabetics, the FDA assumes that it's good for microvascular disease amelioration. All the FDA asks is a certain rough non-inferiority of the drug versus placebo in macrovascular events, but the drug does not actually have to be proven as safe as placebo or more safe in causing macrovascular events. 20% more events on the drug versus placebo is quite good enough to keep the drug on the market.

If you are familiar with statins or the new Repatha/Praluent class of cholesterol-lowering drugs, the medical community expects them to do much more than just attenuate the progression of atherosclerosis, a long-term process that may be compared to attenuation of microvascular disease in diabetes. The expectation is that the drug should decrease the frequency of major adverse CV events, and do so within 2-3 years.

This is a higher standard than has been applied to diabetes drugs, and accounts for the widespread use of statins and the enthusiasm I and several industry players had for Repatha and Praluent.

NVO is in the vanguard here, along with LLY, and I rate NVO as in the lead. That movement accounted for my willingness to pay 28X TTM EPS for NVO last year.

That was a horribly timed purchase, as multiple things went wrong in quick succession long before the positive trends had any chance to play out. The point of this article is to ask whether the opposite situation could be setting up this year. Maybe the bad news - at least most of it - is out, and better years, perhaps many of them, could lie ahead.

I'll begin with the most important of the bad stuff.

What went wrong with NVO, and how the company responded

The major problem was sudden price erosion in the US diabetes market. This had been an area of rapid price inflation, as more patients developed diabetes, it was diagnosed more often, and a greater proportion of patients agreed to be treated. So a favorable supply-demand situation for the diabetes drug providers developed. And then, it surprised the industry and reversed. That was pretty much the only reason that NVO lowered its earnings projections for the next several years down to a midpoint of low single digits from a previous mid-to-high single digit CAGR. Thus, like AAPL in 2012-3, when it gave up 45% of its stock price based on a reset of earnings expectations from above $50/share (using pre-split numbers) to $40/share, NVO's TTM P/E dropped from as high as 30+ in 2015 and 28X a year or so ago to as low as the 15X range or slightly lower.

The question now is whether NVO will be like AAPL, which was battered when it was dropping and then down in late 2012 and 2013 with talk of chronic deflation ruining iPhone margins and Android dominance, plus what proved to be valid commentary that the iPad had peaked early in sales and was not going to meet high expectations for sales. Yet the Android hype and hope for price erosion/destruction, common in prior electronic industry cycles and hoped for by many for pharmaceuticals, have still not happened.

The product was top-notch, fit with the evolving times, and continued growing. Soon enough, the earnings setback was forgotten and the debate turned to how much growth could be ahead.

I think this is a reasonable thesis to take for NVO, a debt-free company with a potentially explosive late-stage pipeline.

Beyond the pricing issue, there are some other problems at NVO needing mention.

Delayed product intros

There were two US product intros that were either delayed (Xultophy, formerly proposed to be called iDegLira) or still pending (Fiasp). Xultophy is a fixed-dose combination of two of NVO's most important products, its class-leading long-acting (basal) insulin Tresiba and Victoza. Still pending is Fiasp, a next-generation ultra-short-acting insulin. Fiasp has been approved elsewhere, and NVO says that it's on track to launch it in the US relatively soon.

Management shake-ups

This is of some significance. The veteran CEO was replaced last year to join the board; NVO not only does not let the CEO act as chairman, he and the entire executive team is banned from being a director of the company. The current CEO is an NVO veteran with good credentials.

At the same time, the head of North America operations - the epicenter of the financial weakness - was given to a NVO employee who was working elsewhere, Jakob Riis. It made sense to shake things up. But suddenly on March 1, this announcement was made:

Novo Nordisk A/S today announced that Jakob Riis, executive vice president, head of North America Operations and president of Novo Nordisk Inc. has resigned from the company. Effective today, Doug Langa, senior vice president for Market Access, Novo Nordisk Inc., has been appointed senior vice president, head of North America Operations and president of Novo Nordisk Inc.

No explanation of this sudden departure of Mr. Riis from NVO was given. It's a little disconcerting.

However, Mr. Langa may be well suited for this key position, as the press release goes on to explain:

Doug Langa is senior vice president, Market Access and a member of Novo Nordisk's US leadership team. He joined the company in 2011 as senior director, Managed Markets. He came from GlaxoSmithKline (NYSE:GSK) where he was senior director of Payer Marketing. Prior to GSK, Doug Langa spent the majority of his career at Johnson & Johnson (NYSE:JNJ), where he held various roles of increasing responsibility within Managed Markets, Sales Leadership and Marketing. He has over 25 years of experience in the pharmaceutical and medical device industry.

These changes are now a potential positive for NVO, but I'm cautious when I see this sort of turmoil.

Loss of the oral insulin upside possibilities

One of the speculative reasons to go long NVO last year was that it had done Phase 2 programs in two different formulations of oral insulin. That has been a mega-blockbuster dream of the industry and of NVO. However, in two sequential decisions, NVO decided that neither formulation provided enough margin of error against the possibility of quick release of the insulin, with possible sudden death resulting.

Even assigning a low chance that one of those oral insulin products could come to market as a game-changing super-blockbuster gave a measurable present value, and that theoretical value is now zero.


Workforce reductions were made, and R&D focus was tightened to the highest prospective ROIC projects.

The company also announced that it was going to be less insular in its search for the best molecules and would, therefore, probably be doing more partnering. This might appear to be a positive, but it could also mean lower net margins.

Next, reasons to hope that the future will be bright as the negatives recede into the rearview mirror and positives emerge.

What may go right for the company and the stock - Part 1 - the analogy to Apple circa 2012-3

In this section, I want to focus on the Apple (NASDAQ:AAPL) ecosystem analogy. Another analogy that may work between NVO and a significant part of a drug company is to Gilead's (NASDAQ:GILD) HIV/AIDS franchise, which GILD continues to renew. But as an entire company, and also because of the gigantic market opportunity, the AAPL analogy is superior. Granted, diabetes is not 100% of NVO, but at 80% of sales and the lion's share of its growth opportunities, it can basically be considered a diabetes company plain and simple. Whereas GILD has the still-large hepatitis B and C segments; and it is trying to grow via R&D in liver diseases, cancer and autoimmune diseases. NVO, like AAPL, is doubling down on its raison d'etre.

So I see the right analogy as being between the serious downdraft that AAPL suffered after peaking at a split-adjusted $101 in 2012 and then dropping to the $55 range the next year. Its 45% peak-to-trough drop following a multi-year surge mirrors that of NVO, which dropped almost 50% from its 2016 high to its November low.

NVO has cleverly tied, and plans to continue to tie, its products together in a way similar to AAPL. The importance of an ecosystem was demonstrated in a graphic by Microsoft (NASDAQ:MSFT) about two years ago in a presentation admitting that MSFT needed to get more AAPL-like. This is the graphic, as shown with some explanation in a 2015 article I wrote on why AAPL was fated to go higher over time:

From Geekwire on March 22 reporting on a Microsoft presentation:

...Apple and Google are doing a better job of connecting their respective products, with usage of one more naturally leading to usage of another.

That's the key takeaway from this Microsoft chart, which was shown by the company's top marketing executive, Chris Capossela, during a presentation this week at the Microsoft Convergence conference in Atlanta.


...But it also shows you that we don't have nearly the connectivity between our products that Google has engineered and that Apple has engineered."

This is giving Apple and Google a marketing advantage, he explained.

So, larger circles for MSFT, greater market value for AAPL due to the marketing advantage.

Since I'm no good with graphics, I'll have to describe the NVO ecosystem strategy with words. First, there's another part of the AAPL strategy that's also a core part of the NVO strategy, and is not shown on the above graphic.

This part of the strategy involves having both older and newer versions of the same product actively marketed simultaneously. AAPL has its different iPhone generations in the stores, at different price points. They all do the basic job, but the newer versions do a little more.

The same is true for NVO, which markets at least three versions of both a long-action insulin and short-acting insulins; plus it plans to be simultaneously promoting both Victoza and its next-gen product semaglutide by year-end. Plus, it's planning for a 2019 or 2020 product intro of a different, oral version of semaglutide. Plus, it's planning for the injectable version of semaglutide that's pending FDA and EU approval to be able to either be dosed once weekly or daily. Plus, it's already gotten Victoza approved for two different indications, diabetes and weight loss; and it's planning the same program for semaglutide.

On top of that, there are combination products of the above.

All this is from the following list, plus injectable semaglutide which awaits FDA and EU approval (an oral version of semaglutide is in Phase 3 trials):


Xultophy® Insulin degludec/liraglutide
(rDNA origin) injection
Summary (SmPC)
Ryzodeg® 70% insulin degludec and 30% insulin aspart (rDNA origin) injection Summary (SmPC)
Tresiba® Insulin degludec (rDNA origin) injection Summary (SmPC)
Levemir® Insulin detemir

Summary (SmPC)


Biphasic insulin aspart

Summary (SmPC)


Insulin aspart

Summary (SmPC)

Victoza® Liraglutide injection

Summary (SmPC)

One should add to that list the same drug that's active in Victoza that is separately approved for obesity treatment under the brand name, Saxenda. But it's just high dose Victoza.

The right-hand column in the above chart links to EU documentation for each drug - recommended for readers interested in scientific/medical details.

I will discuss some of the above later, but rather than get more technical than necessary to lay out the investment case for NVO, in the next sections, I want to get to the meat of the investment case for NVO and lay out its challenges.

Then, I will double back to the ecosystem story for NVO, which I think is strong. Just as with AAPL, there are global needs and countless potential customers who are not current customers; there is the best-in-breed consideration, and there are countless satisfied customers. Of course, in NVO's case, the customers are both doctors and patients, and thus, the analogy is not perfect. All that AAPL had to do was execute in its ordinary strong fashion going forward from 2013, which it did, without anything approaching another iPhone or even iPad novel product intro, and the stock soared to its much higher highs in 2015. NVO has the visible possibility of first injectable semaglutide, then oral semaglutide; and it's trading at roughly the same relative P/E discount to the market (NYSEARCA:SPY) that AAPL was when it was languishing near its lows 3-4 years ago.

Next, though, I lay out the groundwork for why NVO may have just the right products for diabetes, that the paradigm that has held for decades in treating maturity-onset diabetes, now more properly called Type 2 diabetes (non-juvenile-type), may be changing for the better.

The gathering academic-commercial case for the NVO ecosystem - introduction

Just as the iPhone and iPad, and now probably the Apple Watch, were viewed as best in class from the day of their introduction to the market, the same may be true for the NVO lead products based on the parameters of cardiovascular efficacy.

I went into detail on this topic in my first NVO article, Novo Nordisk: Overview And Focus On Its Diabetes Franchise (Part 1). In the article, which in my defense in making a badly-timed investment, contained a section heading that read: "NVO's product line - strong but not enough to justify the valuation," I also said:

The reason to care about high blood sugar levels is that T2DM [type 2 diabetes mellitus] is associated with a high risk of damage to large blood vessels, resulting in much higher risk of major stroke or heart attack; and with microvascular damage, leading to impaired vision, kidney failure, etc.

Unfortunately, while there are many ways to give a drug and thus lower the blood sugar level in the blood, there has been precious little evidence that doing so is good for the patient.

NVO has become a leader in changing the unfortunate situation that the last sentence in that quote describes. And, more important now, my thinking is showing growing signs of taking hold. If so, I believe that the resonance could change the prescribing and reimbursement patterns with the same sort of shock with which the iPhone disrupted the BlackBerry (BBRY) and other smartphones that were hanging around in 2007 with few users.

The rationale for saying that can be exemplified by quoting from two adjacent "Viewpoint" (essentially, medical op-ed) pieces in the March 14, 2017, issue of the Journal of the American Medical Association, aka JAMA.

Thought leaders warm to evidence-based diabetes treatment

The first Viewpoint "op-ed" was Management of Type 2 Diabetes in 2017, by a Harvard MD and a U. of Colorado MD.

This article points to both Victoza and the still-investigational semaglutide, asserting unequivocally:

Recently published trials on cardiovascular outcomes demonstrate a cardiovascular benefit of 2 agents in this class: liraglutide [Victoza] and semaglutide.

After also saying positive things about Jardiance from LLY, they then go on to conclude:

Patient-centered diabetes management can be accomplished with lifestyle modification and combination therapy... Antihyperglycemic therapy should be combined with evidence-based treatment of cholesterol and blood pressure for cardiovascular risk reduction.

In other words, they assert that doctors should now think of Jardiance and Victoza, and presumably soon semaglutide, prominently when treating diabetes; just lowering blood sugar is now insufficient in their opinion. While this article does not go into details, Victoza has shown certain superiority to 1-2 other members of its GLP-1 agonist class. Thus, the point was to use these specific drugs, not simply members of their class.

The other Viewpoint article is titled Is Hemoglobin A1c the Right Outcome for Studies of Diabetes? and is co-authored by two Yale MDs.

The title refers to a blood test that estimates the average glucose load in the body over a multi-week time period, namely hemoglobin A1c, aka HbA1c.

This article mentions that a relative of Victoza, in a class somewhat like its GLP-1 agonist class, led to increased hospitalizations for heart failure, and that, regarding the positive CV effects of Jardiance, Victoza and semaglutide, and the negative effects of saxagliptin:

"...were out of proportion to the small differences in glycemic control levels. Therefore, the effects observed were likely unrelated to differences in the glucose-lowering efficacy of the evaluated drugs."

That last sentence is crucial. These authors are strongly suggesting that the specific drugs are doing things to affect the CV system favorably at least somewhat apart from their actions on glucose metabolism. Thus, being members of the same class of drugs does not mean that the CV effects that one drug leads to have anything special to do with the CV effects of its alleged related drug. So, if Victoza helps prevent major adverse CV events, there's no reason to think that a competitive GLP-1 agonist will have the same effects until the data come in positive for that competitor.

The authors then go on to make more or less the same related point in several ways, which shows that they really mean it. It also suggests that JAMA's editors approve by allowing redundancy in a brief article. For example, the authors say (hereon I will substitute brand names for chemical names for reader convenience):

Although guidelines promote individualized glycemic targets for patients... a more profound shift is needed.

Based on the recent trials, treatment should be selected to target specific complications and inherent risks, not solely glucose levels. Patients with established cardiovascular disease and at high risk for recurrent events may benefit from treatment with drugs that lower this risk, such as Jardiance and Victoza.

That's pretty clear. Meaning, old drugs such as sulfonylureas should be dropped toward the bottom of the list, not used first because they are inexpensive. The new, expensive ones with proven benefits should be used more.

They then go on to support my point shown above, as suggested above, in which they question the FDA itself re microvascular complications, saying:

... the FDA advises that drugs that lower HbA1c levels can be "reasonably expected to reduce the long-term risk of microvascular complications" and, therefore, "reliance on HbA1c remains an acceptable primary efficacy endpoint..."

Recent evidence suggests that this assumption may also not be valid.

That's a pretty "in your face" comment directed at the FDA. Thanks to those authors for an "emperor has no clothes" comment.

The authors conclude bluntly with the logical conclusion to their thinking:

Trials that use outcomes based solely on glycemic parameters are no longer acceptable for clinical decision making. Clinicians and patients need evidence about outcomes associated with different drug classes and likely with different agents within a class.

I would remove the word "likely" but otherwise agree.

The clinical trial results that NVO has shown, and may continue to show, could position it to grow strongly despite pricing pressures, which are normal as drugs age. The above Viewpoint articles could be just the start of a multi-year process of changing guidelines and then, over time, changing prescribing and reimbursement patterns. My thought is that the above articles could be just the start of an extensive and extended change in treatment of diabetes in the US and globally.

Why these views becoming mainstream could be very good for patient NVO stockholders

Stock market investing for alpha requires getting the future right before the herd. When two Viewpoint articles saying very similar things appear together in JAMA, a general but top-tier medical journal, my interpretation is that the vanguard in academia is signing on to the point of view I expressed one year ago about the emerging importance of outcomes-based diabetes treatment.

In the stock market, however, what happened a year or more ago is that traders stopped looking very far forward to pipeline-based pharma stories. That was one major negative to NVO, as the Victoza/semaglutide story lost the impact I expected to keep NVO at a high P/E; the other one that was unforeseen was the worsened pricing environment in the US, the source of slightly more than half of NVO's sales and until last year, a reliable inflation-tolerant land.

That's in the past; now there's 2017 and beyond, with NVO trading at roughly 16X EPS expected for both 2016 and 2017. Given that semaglutide won't make much difference financially next year, maybe NVO is at 16X 2018 EPS. That's still below the P/E of the SPY.

The sales breakdown at NVO shows that a sustained surge in the drugs that have proven superior, and that have the highest profit margins, could materially aid sales over time. From the summary press release of full-year 2016 earnings on Feb. 2:

Sales increased by 6% in local currencies and by 4% in Danish kroner to DKK 111.8 billion.

  • Sales of Tresiba® increased by 221% to DKK 4.1 billion (219% in Danish kroner).
  • Sales of Victoza® increased by 12% to DKK 20.0 billion (11% in Danish kroner).
  • Sales of Saxenda® increased by 245% to DKK 1.6 billion (243% in Danish kroner).
  • Sales in the USA increased by 4% (4% in Danish kroner).
  • Sales in International Operations increased by 14% (2% in Danish kroner).
  • Sales in Region China increased by 12% (6% in Danish kroner).

The lead approved drugs going forward in my view, in addition to the growth hormone and hemophilia franchises, are the above-named three drugs plus a combination of Tresiba plus Victoza, called Xultophy.

The above link can be expanded to a lengthy full-year report; the annual report may be a better thorough read.

The main point to add before getting into more detail on the growth drugs and then concluding is that with diabetes/weight loss drugs about 80% of the 112 B DKK annual total, or about 90 B kroner (6.9 kroner = 1 USD), we are only looking at 26 B DKK of sales from these key drugs. That leaves lots of upside potential if sales take off should treatment paradigms change.

Some links and comments regarding NVO's lead drugs

There is a growing body of evidence of the health benefits of Victoza and semaglutide. I've written about these before and review and update them now, with newer data on Tresiba and Xultophy as well. Then, I'll wrap up with summary comments on the NVO ecosystem and my current strategy on investing in and trading/accumulating the stock.


The LEADER study of this drug, liraglutide, was written up in the NEJM on July 28, 2016, with details discussed earlier in the year. The group studied was at elevated CV risk with inadequate diabetes control. The primary outcome was a composite of CV death, nonfatal MI and nonfatal stroke.

This adverse outcome was lowered by 13% by Victoza versus placebo, with enough events that the confidence interval was small; thus the result was statistically significant.

CV deaths were decreased by 22%, with the confidence interval also showing this was a statistically significant difference. That could persuade many doctors that this is a clinically relevant finding.

After all, between a nonfatal MI and CV death, we will all prefer the nonfatal event. Something good was going on with Victoza usage in those high-risk patients.

Semaglutide (injected)

This drug, still investigational, underwent a smaller outcomes study than Victoza, and was designed long before the Victoza results were known. The SUSTAIN-6 study of semaglutide, part of the many Phase 3 studies used to support the marketing application for this Victoza analogue with a much longer half-life, was also written up in the NEJM, this time last September. The patient population and primary outcome were quite similar to that of LEADER.

The primary outcome dropped a statistically significant 26% due to a large decrease in nonfatal stroke. A minimal decrease in CV mortality was seen in the semaglutide group but was not close to being statistically significant.

This study had fewer patient-years than did LEADER. I do not believe that a larger outcomes study of injectable semaglutide has been announced; I do expect one at some point.

My "take" on this is that semaglutide is so similar structurally to liraglutide (Victoza) that assuming LEADER is accepted as the experts quoted above in JAMA believe, semaglutide will be assumed by doctors to also have CV-protective effects along with anti-diabetic and weight loss effects.

Related to these positive effects, NVO has a Phase 2 NASH trial of once-daily semaglutide underway. This follows a small UK study of Victoza in NASH, reported about 2 years ago, that had promising results.

Semaglutide - oral

This drug, which is scheduled to complete Phase 3 studies either in 2018 or 2019, just might be the "cherry on top" for the GLP-1 drug class for NVO. This novel formulation would be groundbreaking if safe, effective and well-tolerated. This is being studied in the PIONEER set of Phase 3 studies.

Nausea and vomiting, and pancreatitis, were seen in the Phase 2 program with this drug given orally at a higher rate than with injected semaglutide. In response, NVO has limited the dose to 14 mg daily, relatively low given that the range of dosing in Phase 2 went up to 40 mg daily.

I would expect oral semaglutide, based on the following results, to be moderately effective and to be used in conjunction with other drugs. Its activity in a Phase 2 study is shown below. The bars show HbA1c lowering, with placebo at the far right and the active control of injected "SEM" or subcu semaglutide next to the placebo bar.


Based on the above, the 7 and 14 mg doses could be commercially strong entries. No needles!

I give injected semaglutide a high chance of approval by the FDA and in the EU, and oral semaglutide a good chance of approval as well.


I must temper all such projections, because NVO has a history of delayed approvals of important drugs at the FDA, though it has done better in the EU. So I hold my breath for approval at the first PDUFA date for injected semaglutide.

Next, on to NVO's potential major blockbuster in long-acting insulins.


This is NVO's follow-on to its long-acting insulin Levemir, which has been a direct competitor to the extremely successful Lantus from Sanofi (NYSE:SNY). Lantus is chemically known as insulin glargine, and is now subject to biosimilar competition in the US.

On behalf of Tresiba, NVO has gone after Lantus with different comparative studies. Last June, NVO issued a press release with this headline relating to the SWITCH-1 and SWITCH-2 studies:

Tresiba® (insulin degludec injection U-100) demonstrated significantly lower rates of overall, nocturnal and severe hypoglycemia vs insulin [glargine; Lantus]

The reduction in hypoglycemic events was 30% plus for Tresiba, and it's had a successful US and global introduction.

In November, the DEVOTE cardiovascular safety and efficacy study of Tresiba was the subject of a press release:

Novo Nordisk A/S: Tresiba® demonstrates a safe cardiovascular profile and reduces the risk of severe hypoglycemia compared to insulin glargine U100 in the DEVOTE trial

That's similar to the SWITCH studies, but there was incremental positive news for Tresiba that resonates a bit with me:

The trial achieved its primary endpoint by demonstrating non-inferiority of major adverse cardiovascular events (MACE) with Tresiba® compared to insulin glargine U100. The trial, thereby, confirmed the results of the DEVOTE interim analysis submitted to the FDA in March 2015, on the basis of which Tresiba® and Ryzodeg® 70/30 were approved in the US in September 2015.

The primary endpoint of the DEVOTE study was defined as the MACE composite outcome of the first occurrence of cardiovascular death, non-fatal myocardial infarction or non-fatal stroke and showed a hazard ratio of 0.91 in favour of Tresiba® relative to insulin glargine U100, with no statistically significant difference between the two treatments.

Tresiba has a much longer half-life than Lantus, giving it the advantage that it can be given any time of the day, and it's not important to try to give it at the same time every day. This is a practical advantage especially for busy working people or people who simply travel a lot. The longer half-life means fewer swings in the effects of insulin on the body when given no matter when it is given during the day. This longer half-life is why Tresiba causes notably fewer episodes of severe drops in blood sugar than Lantus.

Given the general principle that treating chronic conditions usually is better with smoother-acting drugs, it would make sense to this cardiologist (retired) that Tresiba would well have greater CV safety than Lantus, with the greater variability in physiologic effects that it has. That's far from a certainty, but when we write prescriptions, we are used to dealing with incomplete information. A trend is still a trend, even if the P value is not "significant."

So I'd be inclined to say that Tresiba is truly the best long-acting ("basal") insulin ever produced and likely will gain market share steadily.


Xultophy consists of a fixed-dose mixture of Victoza and Tresiba.

It is part of the ecosystem, established and potential, I've been talking about. The only bad thing about this drug is the awkward name. Apart from that, I think that it could prove a gem.

Perhaps, Xultophy can exemplify the ecosystem concept for NVO. If you read JAMA or, once the Victoza label is updated, become well aware of its CV benefits, you begin to also get exposed to Xultophy and thus to Tresiba.

NVO is planning to focus on building up Tresiba before putting a lot of marketing muscle behind Xultophy, but I look at this product as both having good aggregate sales over time and having a meaningful ecosystem effect. After all, Victoza is presumably just the start. Once doctors get used to giving a basal insulin with Victoza, why not give Tresiba with semaglutide, assuming that this combination of drugs has no chemical compatibility issues? So at least in theory, and very possibly in practice, all sorts of life-cycle management, line extension possibilities arise from Xultophy.

Just as with AAPL, one product leads to another.

Other combos

NVO has other combinations on the market involving shorter-acting insulins. They too add to the ecosystem approach. In the interest of brevity, I'll move on, but a serious student of NVO may want to check them out and then think about other combinations that could be introduced later.

Saxenda and the weight loss frontier

It turns out that liraglutide at most doses that lower blood sugar (marketed as Victoza) also are associated with weight loss. But the FDA, in its infinite wisdom, wants a certain large amount of weight loss to be achieved before a drug receives its approval for weight loss. That limited NVO to a high dose of liraglutide for the separate obesity indication, with the brand name of Saxenda (another unfortunate name in my humble opinion). In any case, Saxenda sales are growing.

NVO is planning for semaglutide to also treat weight loss.

See pipeline for more details about the obesity and diabetes programs.

Putting all the above together, whether it's a primary care doctor treating a non-diabetic obese person, Saxenda is already a leading choice. Since primary care doctors make the initial diagnosis of diabetes and are the main people treating it, the more they get used to even thinking about liraglutide, the easier it is for them to think of Victoza as an early treatment for diabetes where diet and exercise are inadequate.

More broadly, not talked about are the many patients in the US, EU and globally on some NVO product for diabetes, including "modern insulins," which are now a bit outdated but still effective. Just as any iPhone user is a candidate to upgrade to one of the latest models, anyone on a Novo Nordisk insulin is a candidate for an upgrade to a truly modern diabetes and/or weight loss drug - now with the possibility of truly reducing risk of cardiovascular death, stroke, etc.


All stocks are risky, and NVO has proven so over the past year. Its regulatory filings provide a thorough review of risks associated with ownership of this stock.

In addition to those, I would highlight the tumult in the North America operations, the lack of clarity as to whether pricing pressures in the US have truly abated, and regarding semaglutide, the spotty record NVO has had of timely approval of a New Drug Application at the FDA. So while I'm confident of semaglutide getting approved by the FDA (but not certain), I will not comment on the timing.

Another risk is that farther down the pipeline, there are limited molecules listed. If semaglutide hits big and Tresiba eclipses Lantus, that concern may not be especially important to NVO's stock price for a number of years, but investors need to watch the early-stage pipeline.

Concluding comments- NVO for the long run?

The risks plus the lack of likely earnings growth guide my strategy with this stock. I'd like to accumulate it due to the secular growth opportunity and need to treat diabetes and obesity in both developed and less wealthy countries; as shown above in detail, NVO has several superior molecules to offer. That's in addition to a full, dominant complement of older drugs well suited for people and payers on more limited budgets. NVO may be able to grow in a secular fashion, with some correlation to global wealth. More wealth means more money spent on better drugs, and unfortunately, the way things go these days, it also tends to mean more diseases of aging and high sugar diets, e.g. Type 2 diabetes and obesity.

With an uncharacteristically low P/E relative to the SPY, NVO can easily absorb some stagnant earnings and emerge as a winning stock for new money entering around $34. For myself, I do not see any catalyst right now, and want to see semaglutide approved with a good label. So I might look to buy some more NVO on dips as the year rolls along. But I look at this as a multi-year story in which semaglutide's successful global launch could add to the evidence-based case for Victoza and semaglutide injectable, potentially then supplemented by oral semaglutide.

I think that both Tresiba and semaglutide have mega-blockbuster potential. Add in Xultophy, short-acting insulins alone and in combinations, Saxenda for obesity, plus some growth in hemophilia and growth hormone treatment, and much higher sales by the early 2020s could await; possibly with stable gross margins around 85%.

Should a return to stronger global economic growth occur, then the importance of the US market to NVO could diminish, providing greater stability in revenues.

In summary, NVO could be a, or the, leader in a megatrend that could revolutionize diabetes treatment for the better, with potential significant effects on long-term corporate profit growth for many years. I'd like to be part of this story, and timing is the main issue for me, with semaglutide and Tresiba the two keys I'm watching most closely.

Thanks for reading and sharing your views and knowledge of the NVO and diabetes/obesity stories.

Disclosure: I am/we are long NVO,AAPL,GILD,CELG.

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.