Novo Nordisk - diabetes world leadership today and tomorrow

Novo Nordisk - diabetes world leadership today and tomorrow

by Pininvest Analysis

Chronic Diseases on pininvest.com

  • 19 constituents
  • 27.7% 1y performance
  • 29.7% volatility
Check the investment theme exit_to_app

The Danish company needs special consideration because of its size, dwarfing all the other constituents of our list, of its market preeminence worldwide and of its unique focus on diabetes (biopharmaceuticals represent only 10% of its 2017 revenue)

If the saying ‘depth beats breath’ needed to be argued in the medical device industry – and in our opinion, it doesn’t – Novo would prove the case beyond doubt

This is not to suggest the company has no competition in diabetes – with two equally large companies, very present around the world – Sanofi of France and Eli Lilly – but not included in our selection because of the breath of their diverse portfolios

In broad strokes,

  • Novo is strong in all the developed markets from which the majority of its revenue is derived but growth is expected to be weakening because the sheer size of its market share exposes the company to generics and biosimilar products, supported by public health insurance
  • The company is countering the competitive pressure with company funded research introducing more advanced medicines which may stabilize its sales at a high level
  • Growth should be derived from the large regions exposed to significant and increasing diabetes risk by sheer effect of economic enrichment (changing the life habits) and because of aging societies. Parts of Africa, the Eastern Mediterranean, South East Asia and foremost China are all entering this phase of their development

China is of special interest to evaluate the future challenges of Novo Nordisk and – in fact – the challenges confronting all Western pharmaceuticals in fast developing markets

  • The intent of the emerging economies to favor domestic pharmaceutical companies and to rely on production on off-patent generics and on formal agreements with established pharmaceutical majors for advanced medicines is clear
  • Generics from India and South Africa are taking hold in developing markets where health care demand, until recently negligible, grows rapidly with emerging middle classes

Read more in our Health Care Generics theme

In China, similar forces are in play

  • The very substantial market share (2/3 in terms of volume – 2011 data) may or may not have been eroded but remains testimony to the decades-long engagement of the company in the country – with a 4 000 strong work force, a production facility and a research center
  • However, revenue only represents approx. 10% of total company turnover, and domestic Chinese competition is closing in on 20% of market share, with Shanghai Fosun Pharmaceutical in the lead and Shanghai-listed Tonghua Dongbao Pharmaceutical, according to Novo company reports
  • It is beyond doubt that with the major health care coverage under way in China – under-reported in Western media, but very real – better diagnostic and diabetes treatment will be more in demand, not less

The open question will be not if – but how fast Chinese domestic big pharma will encroach on the Novo Nordisk moat