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BMO Capital starts Novo Nordisk at Outperform

Published 12/04/2024, 17:56
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On Friday, BMO Capital initiated coverage of Novo Nordisk (NYSE:NVO) with an Outperform rating and a price target of $163. The firm's positive stance is attributed to a combination of factors, including Novo's promising in-development drugs for obesity and type 2 diabetes (T2D), an expanded manufacturing agreement with Catalent, and a significant amount of secondary outcomes data that could potentially increase revenue and opportunities within the Medicare market.

Novo Nordisk is considered to be well-positioned in the growing obesity market, which is expected to exceed $130 billion. Novo, alongside Eli Lilly, is seen as a leading player in what BMO Capital refers to as an incretin duopoly. With established products such as Wegovy, approved in 2021, and Saxenda, approved in 2014, Novo has a strong foothold in the market. The development of new therapeutics like CagriSema, GLP-1/GIPR agonists, and INV-2022 is set to further strengthen Novo's pipeline.

The firm anticipates that upcoming trial results for Novo's obesity and T2D treatments, including the Phase 3 REDEFINE trial for CagriSema in obesity, and the Phase 3 STRIDE and SOUL trials for semaglutide in peripheral artery disease (PAD) and T2D with chronic kidney disease/cardiovascular disease (CKD/CVD), will potentially drive the company's stock higher. These trials are expected to not only expand revenue but also provide alternative pathways to Medicare access.

BMO Capital highlights the widening moat around Novo Nordisk, driven by factors such as manufacturing capabilities, clinical and patient data, diverse pipelines, and market access. The firm expects Novo to continue to dominate within a capacity-constrained market, which is projected to last until at least 2026. This constraint is seen as beneficial to Novo and Eli Lilly, the only two companies with significant manufacturing capabilities—now bolstered by Catalent.

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Despite a recent increase in Novo's share value, which has risen by 88% since January 1, 2023, BMO Capital believes that there is still room for upside. The firm's target price of $163 per share implies a 30% return on current prices and allows for further growth if incretin production capacity expands more rapidly than anticipated.

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