Proactive Investors - Novo Nordisk (CSE:NOVOb) was the European stock market success of last year, on the back of its anti-obsecity drug Wegovy/Ozempic, but analysts at Jefferies wonder if the valuation may be nearing the top as rivals including Pfizer (NYSE:PFE) and AstraZeneca (NASDAQ:AZN) work on rival weight loss drugs.
2024 is expected to see at least 20 possible clinical updates in obesity from 10 or more companies, which the investment bank said highlights the potential for significant competition facing Novo and Eli Lilly (NYSE:LLY) in the future
Jefferies maintains an 'underperform' rating on the Danish drugmaker, saying it is the "least preferred" big cap stock in the sector, though they do not see a single event to catalyse a significant de-rating in the shares.
Novo's valuation, which swelled over 40% to north of US$350 billion last year, is one of the main sticking points along with some "potential longer-term trends that may be somewhat overlooked".
These include the "uncertain" ramp-up of US Wegovy supply, more rapid US net price erosion, the "plethora" of competitor readouts; and "risk exuberance for obesity drugs has peaked".
Ozempic and Wegovy are both brand names of semaglutide, a GLP-1 medication, with only Wegovy currently approved by the US Food and Drug Administration for chronic weight management.
Jefferies remains bullish on this GLP-1 market, forecasting at least US$150 billion sales across type 2 diabetes and obesity by 2030, largely driven by obesity given hiked adoption.
"Despite our bullish stance on the GLP-1 market, we argue current multiples already reflect impressive growth, profit beats and significant claim on market share."
While both Novo and rival Eli Lilly are likely to sell all their manufactured Ozempic/Wegovy and Mounjaro/Zepbound pens during 2024-25, the analysts are concerned about the relevant manufacturing capacities.
While US net price erosion is widely assumed, Jefferies believe "the speed and extent could surprise", forecasting a decline for Wegovy of around 13% per year, as US rebates/discounts expand and prices convergence between type 2 diabetes and obesity.
"Greater rebates are required to expand access to obesity drugs, and have been the norm for T2Ds as the GLP-1 class grew, with Novo likely
leveraging Ozempic rebates to gain traction with payers for Wegovy."
On obesity competition, notable upcoming updates are expected from Structure Therapeutics' GSBR-1290 drug, Viking Therapeutics (NASDAQ:VKTX) Inc's VK-2735, ECC5004 from AstraZeneca PLC (LON:AZN), Roche (LON:0QQ6)'s CT-996, Tern's TERN-601, and Pfizer's once-daily danuglipron.
"We acknowledge many readouts may disappoint, especially given the high efficacy bar set, but see focus being on candidates offering oral convenience, an improved tolerability profile, and/or preserved muscle mass (i.e. quality of weight loss)," the analysts wrote.
Expanding on their view that risk exuberance for obesity drugs has peaked, the analysts noted several challenges for GLP-1 obesity drugs: average usage is estimated at 7-9 months based on US trends; there may be slower US reimbursement due to employer reluctance and legislative changes needed for Medicare coverage; the need for oral version of the drugs to access to a broader market; and growing safety concerns, even if misplaced, that highlight the need for better tolerated options.