Reminder: It is strongly recommended that you read my other highly relevant post after reading this article “Weight loss is the future golden goose of the drug market “
Novo Nordisk (ticker: NVO) is one of the world’s major pharmaceutical companies supplying insulin for the treatment of diabetes, and insulin is its main business.
For the story of how Novo Nordisk unexpectedly defeated Eli Lilly (ticker: LLY), a leader in insulin drug extraction technology, in the insulin market, please see my previous blog post: “Inventors are rarely successful, but improvers are successful and profitable“
What kinds of medicines are they?
In December 2017, the FDA approved the drug Semaglutide (or Ozempic) for the treatment of type 2 diabetes, which can stimulate the body’s insulin production. This new drug is administered once a week Second, it can stimulate the body’s insulin production and reduce appetite to help people lose weight significantly.
According to a study of Big Pharma’s drug, the drug was on average more effective than Merck’s (MRK: MRK ) daily pill at lowering blood sugar levels in patients. At least double. Patients also lost two to three times as much body weight at the same time. After a 56-week test study, patients who received low-dose semaglutide lost an average of 9.5 pounds (4.3 kg), and those who received the high dose lost 13.5 pounds (6.1 kg). Patients lost an average of only 4 pounds (1.9 kg).
Novo Nordisk will obtain permission from the U.S. regulatory authority FDA in 2022 to market the injectable weight loss drug Semaglutide under the brand name of Wegovy. The drug used in weight loss injection Wegovy is also semaglutide, but the dose is different, specializing in weight loss indications.
Follow-up effects induced by semaglutide
Novo Nordisk’s performance exploded
Novo Nordisk boosts sales as strong demand for diet pills：
- It raised its profit and sales forecast for 2023. Sales are now expected to grow by as much as 33% in 2023, up from a previous forecast of 30%. The company also raised its operating profit guidance by 3 percentage points. Looking forward to the full year 2023, the company expects revenue and operating profit growth rates calculated at constant exchange rates (CER) to be 27%-33% and 31%-37%, respectively.
- Sales in the first half of 2023 amounted to DKK 107.667 billion, a year-on-year increase of 30% at constant exchange rates.
- Operating profit was DKK 48.895 billion, a year-on-year increase of 32% at constant exchange rates.
- The net profit was 39.2 billion Danish kroner, a year-on-year increase of 43%; the net profit rate was 36.4%, an increase of 3.4% over the same period last year.
Novo Nordisk said that despite supply constraints, Wegovy beat market expectations last quarter with sales of 7.5 billion Danish crowns ($1.1 billion).
Another company study showed that Wegovy reduced the risk of cardiovascular attack and stroke by 20% (more on that later), a milestone finding that could further fuel Novo Nordisk’s future revenue.
Great for weight loss
According to the results of the Novo Nordisk-sponsored study, experimental participants taking Wegovy lost an average of 15 percent of their body weight, about 34 pounds, and the weight loss remained stable after 14 months; while the control group receiving placebo injections lost an average of About 2.5%, just under 6 lbs.
New indications may become pharmaceutical star products
Endless potential for new indications
I pointed out on page 142 in Sections 3-4 of the book “The Rules of 10 Baggers“that pharmaceutical companies usually continue to look for new indications for approved drugs after they are launched. There are many advantages to doing so. In addition to extending the life of drugs, the biggest advantage is that it can continue to bring additional and new sources of revenue to the company.
Moreover, there are many best-selling drugs on the market now, and the new indications discovered by drugs that have brought major revenue benefits to pharmaceutical companies are actually not at all within the scope of the original drug development. The most well-known example is Pfizer’s (ticker: PFE) Will Steel, which was originally developed to improve cardiovascular drugs. It was later found that it can help men regain their strength, and it can also improve cardiopulmonary function when climbing mountains.
Novo Nordisk’s product semaglutide actually has the same situation. Because when it was first invented, the treatment item targeted by this new drug was diabetes, not weight loss.
Shanxianda make people smarter
Obese people have abnormal metabolism and hormones, which will cause abnormal operation of brain neural circuits and reduce learning ability. Recently, German scientists discovered that a single dose of the weight-loss drug “Senfid” (the main ingredient is Liraglutide, note) can restore the insulin function and learning ability of obese people to normal. The findings were published in the journal Nature Metabolism in August.
On August 8, 2023, Novo Nordisk announced that Wegovy has been found to have a potential role in reducing the risk of serious cardiovascular diseases. The latest clinical results allow Novo Nordisk to apply for a new indication for Wegovy, which will increase the usage rate of Wegovy by about a quarter and bring more revenue to the company. On that day, all weight-loss-related stocks in the U.S. stock market rose by at least ten percent, and the stock price of Novo Nordisk, which is listed in the U.S., soared by more than 16%.
Novo Nordisk’s strong inflence in Denmark
Propelling Denmark’s GDP
The Danish economy grew for the third straight quarter on strong demand from Novo Nordisk and other Danish drugmakers. According to Statistics Denmark, GDP in the second quarter of 2023 will increase by 0.2% compared to the previous quarter. Denmark’s industrial production rose by 4.2% in the same quarter, but would have shrunk by 4% if the pharmaceutical sector was not counted, Statistics Denmark said.
Growth in Denmark in the second quarter was driven in particular by an exceptionally strong Danish pharmaceutical industry. The pharmaceutical industry produces so much that it pulls up the entire economy. Things could have been completely different without it. As more headwinds are being felt by many companies in other industries, other industrial companies and the construction sector, there are clear signs of deterioration in these sectors. Novo Nordisk’s rapid rise has given its market capitalization more than Denmark’s GDP. Novo Nordisk raised its profit and sales outlook for 2023 as demand for new weight-loss drug Wegovy and another diabetes drug boosted revenue.
Without the pharmaceutical industry, the Danish economy would have stagnated since the end of 2021. The pharmaceutical industry has boosted Denmark’s GDP growth rate by almost 2 percentage points since the end of 2021, according to estimates by the Danish Southern Bank, raising concerns that the industry may be masking weaknesses in other parts of the Danish economy.
Forcing Denmark to keep interest rates low
The Danish central bank’s mission is to peg the krona to the euro. Denmark’s central bank has raised borrowing costs less than the ECB over the past year, aiming to weaken its currency at a time when exports are booming. This creates a spread of 40 basis points between the krona and euro zone rates. Growth in the pharmaceutical sector could further boost Denmark’s external balance and strengthen the krona, forcing the Danish central bank to expand foreign exchange reserves and further widen interest rate differentials in the medium term.
Amazing share price performance
Novo Nordisk’s market value skyrockets
After the new drug Wegovy was reviewed and launched in 2022, market demand was extremely strong. In the next year, Novo Nordisk’s stock price soared by 50%, making Novo Nordisk’s price-to-earnings 70% higher than its peers.
The world’s second largest pharmaceutical company
Because of weight loss drugs, Novo Nordisk’s current market value has quickly become the second largest pharmaceutical company in the world ($321.2 billion) in the past year. In terms of the closing price on September 13, 2023, it exceeded the US$394.89 billion of Johnson & Johnson (ticker: JNJ), which has long ranked first in the pharmaceutical industry. Second only to the US$568.51 billion of Eli Lilly (ticker: LLY), which also increased its market value through weight loss.
Regarding Eli Lilly, please see my other article for an introduction to “Eli Lilly, the world’s largest pharmaceutical company with the latest market capitalization and an astonishing valuation.”
Market capitalization exceeds Denmark’s GDP
In September 2023, the weight loss drug craze pushed Novo Nordisk’s market value to over 450.6 billion US dollars, exceeding the GDP of Denmark, making Novo Nordisk’s market value surpass that of Louis Vuitton (ticker: LVMHF), becoming Europe’s most valuable company.
Even Denmark has raised its GDP growth forecast from 0.6% to 1.2%.
Note: Novo Nordisk is a Danish listed company.
On September 13, 2023, the company also announced that the shares listed in Denmark would be split in two, and the ADRs would be split from September 20 to improve the liquidity of the company’s soaring shares. Novo Nordisk shares have risen nearly sevenfold since the company’s last stock split in January 2014. The company’s current expected earnings ratio is 35 times, which is not unreasonable for a super growth stock.
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