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Novo Nordisk shares slide as competition intensifies in diabetes, hemophilia

Shares in Novo Nordisk A/S, the Danish biopharmaceutical company that recently announced a restructuring of its research operations, continued to slide as investors contemplated the competitive threats posed to its pivotal diabetes and hemophilia franchises.

On Oct. 4, Roche Holding AG's rival hemophilia drug Hemlibra received an extended approval by the U.S. Food and Drug Administration for patients with hemophilia A. On the same day, positive data was released regarding Eli Lilly and Co.'s experimental diabetes medicine.

Novo Nordisk is the world's biggest maker of diabetes drugs and has five potential new treatments for the disease in its pipeline, including a once-weekly insulin injection and a long-acting GLP-1 tablet. GIP and GLP-1 receptor agonists belong to a class of drugs that help control blood glucose levels in patients with type 2 diabetes by stimulating the GLP-1 or GIP proteins to increase insulin secretion.

According to results of a phase 2 study released at the European Association for the Study of Diabetes meeting in Berlin Oct. 4, Eli Lilly's version of the dual GIP/GLP-1 receptor agonist, known as LY3298176, performed better than expected in a midstage trial, lowering blood glucose and contributing to weight loss over six months. Compared against both placebo and Lilly's own diabetes medicine Trulicity, this GLP-1 receptor agonist showed a weight loss of 8.7 kilograms and 11.3 kilograms at doses of 10 milligrams and 15 milligrams, respectively, compared with only 2.7 kilograms seen with Trulicity.

'King Kong has arrived'

Jefferies analyst Colin White rates Novo a "hold" and said in a note to clients that the company's "basal insulin franchise is being impacted by evolving biosimilar competition and pricing pressure in the U.S. and the hemophilia franchise is facing greater competition following the launch of Hemlibra."

"In contrast, the GLP-1 franchise has been going from strength to strength with the launch of Ozempic and positive clinical trial results for oral semaglutide," White continued. Jefferies is forecasting GLP-1 franchise sales of 45 billion Danish kroner in 2022, accounting for about 33% of total sales for Novo that year.

Bagsværd, Denmark-based Novo, which has been making diabetes medicines for over 90 years, announced plans Sept. 18 to diversify its research and development operations to include stem cell and cardio-metabolic research. After a failed bid to acquire Ablynx NV earlier in the year, it has been on the lookout for companies in the rare disease space and is keen to pursue more external collaborations and track down novel therapeutic approaches. Having come under pressure from payers in the crucial U.S. diabetes market in recent years, Novo is seeking to diversify just as the competitive landscape intensifies in two of its key therapeutic areas of focus.

"With a new and relatively unexpected competitor likely in due course, some of the bullish forecasts for parts of Novo's GLP-1 franchise might need to be tempered, suggesting a lower consensus revenue and profit growth rate over the long term," said HSBC's Steve McGarry, who is not altering his forecasts. McGarry, who rates Novo Nordisk an "underperform," said the Roche approval should negatively impact Novo's ultra-high-margin NovoSeven business. "The growth challenges for Novo are increasing," he said.

Other analysts pointed out that questions were raised over the safety profile of Lilly's experimental LY3298176 medicine. UBS analyst Michael Leuchten said the 15-milligram dose seems too toxic to be commercially viable. While the data suggests Lilly has a better candidate on its hands than Trulicity, it is not a foregone conclusion that the experimental treatment can beat Novo's Ozempic and oral semaglutide, Leuchten said.

Citi analysts summed up the attitude surrounding the diabetes market in light of the Lilly data by quoting a participant during the company's question-and-answer session at the European Association for the Study of Diabetes meeting in Berlin:

"I used to think semaglutide was the gorilla-GLP1, now King Kong has arrived."

As for Novo's hemophilia pipeline, Jim Huntington, professor of hematology at the University of Cambridge, said the expanded approval for Hemlibra was a positive and would not necessarily impact Novo as badly as it will Shire PLC and Bayer AG's market share in hemophilia.

"It will be interesting to see what the uptake will be," Huntington said. "Hemophilia patients are conservative, and won't change if current treatment is working. I think the $5 billion projection is optimistic," he wrote in an email to S&P Global Market Intelligence. "Safety is key, and I would think most patients will wait for some real-world data before taking the leap. So, perhaps slower-than-anticipated market penetrance."

Shares in Novo Nordisk were trading down 8.10 Danish kroner, or 2.6%, at 277.95 kroner by the close of trade Oct. 8.

As of Oct. 5, US$1 was equal to 6.48 Danish kroner, according to S&P Global Market Intelligence.