Novo Nordisk - Insulin for more than 100 years
It is estimated by the WHO that approximately 1 in 10 people worldwide suffer from some form of diabetes and 1 in 8 can be classified as obese. It is estimated that by 2045, 1 in 8 people will suffer from diabetes. Novo Nordisk (NVO) has been manufacturing insulin and related treatments for more than 100 years.
The beginning
“After hearing of the discovery of insulin in 1921, Danish Nobel laureate August Krogh and his wife Marie, a doctor living with diabetes, were intrigued. At Marie’s urging, August travelled to Canada to seek permission from the researchers to produce this life-saving medicine in Denmark. Upon August’s return, Marie also convinced the scientist Hans Christian Hagedorn to join her husband and August Kongsted from Løvens Kemiske Fabrik. In March 1923, the first patients were treated with their insulin, setting in motion a century of innovation within protein-based treatments for people living with serious chronic diseases.” Novo Nordisk website
Source: Novo Nordisk AFS 1 USD = 6.93 DKK
In 1924, founder, August Krogh, announced that profits from the sale of insulin would be used for the public good. This saw the establishment of the Novo Nordisk Foundation that owns 28.1% of the capital and 77.1% of the votes. The combination of foundation ownership and stock listing enables Novo Nordisk to embark on long term sustainable ownership while maintaining short-term transparency on performance. A real win-win based on performance to date.
Novo Nordisk has seen exceptional growth with the launch of its obesity care drugs, specifically Wegovy. A quote from the 2023 Annual Financial statements:
“Demand for Novo Nordisk medicines is soaring, driven by a global obesity epidemic and exceptional growth in the GLP-1 market. This has resulted in a record number of people being treated with our medicines, but also supply constraints. In response, we are significantly ramping up production capacity and have introduced clear prioritisation principles to ensure broad and equitable distribution of our products.”
Novo Nordisk has been in the Celestial portfolio for more than 10 years. The company is pure quality with management that have demonstrated that they generate significant amounts of free cash flow every year with a record of applying it in shareholders best interest. Over the last few years the company has significantly increased its capital expenditure to meet increased demand, the benefits should flow to shareholders in the years ahead. The following is our one pager on Novo Nordisk and we are looking to increase our position in the near future.
Valuation thoughts
At the current share price of DKK 851, our current valuation of NVO, at a discount rate of 10% and terminal growth rate of 3% indicates an implied growth rate in free cash flow of 23.93%. Working with a margin of safety our outlook is that NVO will grow its net earnings between 16% to 20% over the next 5 to 10 years. The current price is therefore trading at 15% to 30% premium over fair value.
We continue to monitor the development in NVO’s share price and how successful its competitors are, especially in obesity care, before we make further investment decisions.