Trade Idea - Novo Nordisk

Investment Thesis: The bad

Donald Trump’s nomination of vaccine-skeptic Robert F. Kennedy Jr. to lead the Department of Health and Human Services is sending shockwaves throughout the broader pharma industry, beyond vaccine makers such as Moderna and Pfizer.

One area of heightened focus is the fast-growing market for obesity and diabetes drugs like Mounjaro and Ozempic. Eli Lilly and Novo Nordisk are seeking to broaden insurance coverage for such drugs and are conducting studies to show that the benefits extend beyond weight loss to conditions such as cardiovascular disease and sleep apnea.

“Kennedy is critical of the pharmaceutical industry and believes Americans have become too dependent on pharmaceuticals like GLP-1s,” said Chris Meekins, an analyst at Raymond James.

Investment thesis: The good

We expect the GLP-1 diabesity thematic to continue to drive momentum ahead of consensus expectations on multiple fronts for Novo Nordisk in 2025:

• We anticipate the unlocking of GLP-1 supply constraints to drive above-consensus US obesity market revenue growth, despite Kennedy or Trump.

• We expect positive data in obesity-related co-morbidities to drive physician and payer engagement.

• We expect Novo to continue to strengthen its competitive positioning from an R&D (internal and external), commercial and supply perspective, establishing competitive 'moats' against emerging competition.

• Novo has just launched its blockbuster Wegovy weight-loss drug in China, adding the world’s second-largest economy to its growing list of markets where appetite for the drugs are rising.

• China estimates that more than half of the country’s adults are obese or overweight, with the director of the Health Emergency Response Office of China’s National Health Commission earlier this year calling obesity and overweight people “a major public health issue.”

Obesity is a global disease and the sharp divergence between demand and supply of GLP-1’s is nearly unprecedented in modern pharmaceutical history in terms of its scale and its persistence.

“This is a phenomenon like nothing we’ve seen since the advent of birth control,” says Scott Brunner, CEO of the Alliance for Pharmacy Compounding. “It’s even bigger than the HIV drugs in the 1990s or Viagra.”

Fundamental Analysis

Technical Analysis

The risk/reward profile is appealing after the recent “Kennedy sell-off”.

Valuation

The fharmaceutical index has dropped almost 10% since Kennedy’s nomination.

But large-cap pharma companies are now trading at about a 35% discount to the S&P 500, as measured by their forward price-earnings ratios.

Risks to upside

• Above consensus obesity growth

• GLP-1 clinical success in NASH and Alzheimer's

• Pipeline success in next-gen diabetes/obesity

• Chinese demand

Risks to downside

• Further US pricing initiatives extending to the GLP-1 class

• Strong competitor obesity data

• Greater step-up in higher-risk opex investment to broaden the pipeline

• Supply issues: Can they meet overwhelming demand?

Bull-Bear Case

We value Novo at DKr 990 (base case Dec 2025) which is based on c. 31x 2025E, which we continue to see as justified by substantially higher growth than the sector.

Conclusion

We believe obesity is on the cusp of moving into mainstream primary care management and the obesity market is where the treatment of high blood pressure was in the mid-to-late 1980's.

While the cloud of uncertainty could persist for a while, the potential for upside outweighs the potential for additional downside, especially for longer term investors.