Most valuable company in Europe
Should investors still invest in Novo Nordisk?
09/06/2023, 4:55 p.m
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The slimming syringe from the manufacturer Novo Nordisk is immensely popular and has even made the pharmaceutical company the most valuable company in Europe. In an interview, CMC market analyst Oldenburger explains whether the hype will continue and what could be fatal for the company.
ntv.de: The hype surrounding the Wegovy weight loss syringe has made the Danish manufacturer Novo Nordisk the most valuable company in Europe. Was that foreseeable?
Konstantin Oldenburger: No, absolutely not. The company’s success came as a total surprise. In the pharmaceutical industry, different drugs are always en vogue. As a result, companies are generating record profits. However, nobody would have predicted that the weight loss injection would make Novo Nordisk the most valuable company in Europe. The course performance of over 3000 percent is breathtaking.
Konstantin Oldenberger is an analyst at CMC Markets.
The Danes have pushed the French luxury manufacturer LVMH off the throne. Is it now more important to people to be slim than to own an expensive handbag?
First things first: Novo Nordisk has two drugs on the market. Wegovy was developed exclusively for the treatment of obesity. The other drug, Ozempic, is actually intended for people with diabetes. The latter is also used underhand to lose weight. Being slim is a fad. At the same time, one has to concede to LVMH: The company actually delivers well. The numbers in the last quarter were okay. However, the stock recently had a sideways phase.
How come?
This is also due to the poor economic situation in China. Above all, the sales there are very important for the luxury goods manufacturer. That’s why investors are taking their foot off the accelerator a little bit. Novo Nordisk is also benefiting from a positive price environment in the USA. The drug is prescribed there for 1000 dollars, in Europe it costs just 300 euros. That shows how large the margins are in America. In the USA it is estimated that up to 100 million people suffer from obesity. That would of course be an insane market.
Currently, the production capacities can hardly meet the demand. Who could compete with Novo Nordisk?
The obesity market is a duopoly. At the moment Novo Nordisk and Eli Lilly share the market. Should Novo Nordisk run into trouble or a cheaper drug be available, a duel may ensue. Pfizer and the German company Boehringer Ingelheim are currently researching a similar drug. Both companies have research studies underway. Results are not expected for three years. So before that, no other company can compete with Novo Nordisk and Eli Lilly.
Novo Nordisk stock has tripled in price since 2020. What’s up?
The share price has really put in a great performance. As of today, the stock is up 41 percent in Denmark. If the papers no longer react to positive news one day, then the hype is probably over. The share’s low was in July this year at 1008 Danish kroner. In charting, high and low points define a trend. So as long as the share is above the 1008 Danish kroner mark, the upward trend is unbroken. However, should the papers fall below this mark, it will become problematic and there is even a risk of a sell-off.
Should Investors Get In Now?
Much of the current price development is driven by hype. This means that more and more people are finding out that there is a drug on the market that promises very high profits. At some point, a speculative bubble is inevitable. On the one hand, this is very dangerous for investors who jumped on the bandwagon late.
And on the other hand?
On the other hand, this drug is so groundbreaking that there is no telling how big the market is and how much the company can actually make. If the market were to expand further, there would of course be new scope for increasing profits – and then completely different courses are conceivable. Should a world market ultimately emerge, we’re talking about even higher prices and an Apple situation. At first glance, a weight loss pill may not really compare to a smartphone, but if billions of people worldwide use this drug, Novo Nordisk, like Apple, is likely to dominate the market and dictate prices for years, maybe decades.
What has to happen for the hype to come to an abrupt end?
In the pharmaceutical industry, side effects or subsequent knowledge about a treatment are often a problem. This can become a danger, especially if the medication is used privately to lose weight. Then the question arises: what is on the leaflet or how did the company inform consumers about this drug? One result could be lawsuits. As is well known, the hurdles to going to court in the USA, Novo Nordisk’s main market, are not particularly high.
Juliane Kipper spoke to Konstantin Oldenburger