NovoNordisk's share price from 2001 to Nov 11, 2016
It is easy to be wise after the event and in the context of stock market volatility the retracement of NovoNordisk’s stock price by 45% from the 12 month high may not seem too bad. However, NovoNordisk has been one of those companies that has consistently exceeded expectations for so long that calling the top was considered a mug’s game within the investment community. The secular growth trend of diabetes (more Type 2 than Type 1, to be fair) around the world has underpinned the attraction of this company to investors for more than two decades. Furthermore, the company created such a strong culture of environmental and corporate responsibility that minor commercial setbacks were soon forgiven. Add to this the consistent uplifts to sales and margin from a series of trends; the shift from syringes to pen systems, disposable and cartridge; a succession of new insulin analogues, each supposedly better than the last; penetration of the US at the expense of the incumbent, Eli Lilly; a big push into emerging markets; and finally abandoning the search for a third leg to the business (diabetes and haemophilia were the main legs) in favour of developing a multiplicity of insulin-derivative combinations that would fill every conceivable diabetes/obesity niche. No wonder that traditional NPV models consistently under-valued this stock since no-one knew when the insulin life cycle rejuvenation process would ever stop.
However, the push back on US price rises and the recent self-inflicted wounds in Europe of attempted global pricing of Tresiba, has given NovoNordisk’s reputation a severe knock. Not just with investors but apparently with doctors too, who have been trying to reconcile the company’s celebrated care for its patients with apparent disregard for local budget constraints. These concerns have been around for some time. The loss of 1000 jobs and the cuts to its training budget suggest that NovoNordisk is finally responding but the rebuilding of trust and the recovery of a stable sales trajectory may be more difficult than managing the cost base.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.