NVO - Novo Nordisk

[giofranchi]

Is there a thread about NVO?

 

I have started a relatively small position in NVO yesterday. After almost a 15% decline in share price.

I believe management is proven in any economic environment and the company is very well positioned to take advantage of the trend in diabete due to an overweight and aging population.

 

NVO track record is stellar and it has no long term debt.

 

Here you might find an article I deem interesting and well written about NVO:

 

Novo Nordisk Drops 10%; Up 10X In 10 Years, Why It Can Surge Again $NVO

http://www.seekingalpha.com/article/3997221

 

Cheers,

 

Gio

[Phaceliacapital]

What do you think of its bargaining power vis a vis the PBMs:

 

http://www.bloomberg.com/news/articles/2016-08-02/novo-s-victoza-diabetes-treatment-rebuffed-by-express-scripts

[KinAlberta]

I believe Randall (Randy) McDuff wrote up some information on this one a number of years ago.

 

Heres a bit on it from a few years back:

http://www.barrons.com/articles/SB50001424052970203429304576220944005377386

 

Here's McDuff's writeup. (His others were worth reading too.)

http://www.stockhouse.com/blogs/stocks-with-low-forward-ev-ebitda/october-2008/novo-nordisk-game-changing-next-generation-insulin

[giofranchi]

What do you think of its bargaining power vis a vis the PBMs:

 

http://www.bloomberg.com/news/articles/2016-08-02/novo-s-victoza-diabetes-treatment-rebuffed-by-express-scripts

 

I can't really tell...

High margins always attract competition and the healthcare sector is always under close scrutiny.

NVO, though, is in the same business for longer than 80 years, therefore very few know their market as well as they do. Present management is in charge since 2000, it has done extremely well, and is proven in any economic environment.

I think that, if pricing pressure can be managed, no one knows how better than NVO's management.

Of course, I might be wrong and revenue could go down instead of increasing. If that happens, I'll change my mind.

 

Cheers,

 

Gio

[giofranchi]

Lars Rebien Sørensen to retire as CEO of Novo Nordisk; Lars Fruergaard Jørgensen appointed as successor

 

http://www.novonordisk.com/media/news-details.2038703.html

 

After 34 year with NVO and 16 years as CEO, this kind of sudden change in management always makes me nervous. I have closed my position, and I’ll be watching from the sidelines for a while.

I have used the proceeds to add to my IBB investment.

 

Cheers,

 

Gio

 

[kab60]

There is nothing unexpected about this. Sure, noone knew the exact timing, but everyone who has followed Novo knew it would happen in the next two years; they said so before. If this was a reason to sell one didn't do his research properly. That said, Novo faces a bunch of challenges, but there is a lot of fat to cut as well.

[giofranchi]

There is nothing unexpected about this. Sure, noone knew the exact timing, but everyone who has followed Novo knew it would happen in the next two years; they said so before. If this was a reason to sell one didn't do his research properly. That said, Novo faces a bunch of challenges, but there is a lot of fat to cut as well.

 

Well, it was the smallest position in my portfolio I had opened basically for two reasons:

1) The stellar and very long track record NVO enjoys, which puts it in a very small circle of outstanding long-term performers;

2) The recent steep pull back in its share price, which not very often happens in a high quality company that usually trades at very lofty multiples.

While I was learning more about it.

 

On the other hand, IBB has recently come down because of MYL, and I wanted to add some.

 

Cheers,

 

Gio

 

[John Hjorth]

I certainly understand your actions here, Gio. Being invested in this company involves taking some risks. The risks are all carefully described - for years - in the financials of the company.

 

Having a large position in this thing is like holding a glowing iron ball in your hand. It's the only thing I have done so far that has created selfinduced stress, so it's for me also a test of my self with regard what kind of stress I'm able to endure. I can feel that I get better at it - over time.

 

The steep pull back recently was the outcome of non Danish investors massively offloading the stock, while Danish investors was picking it up - the size of the wallet of buyers and sellers determine the effect on the price of the stock.

 

I have a totally different view of the changes in the management team at Novo Nordisk A/S announced today. This management change at Novo Nordisk A/S I actually consider some kind of promotion of Lars Rebien Sørensen, because he is moving up in the "Novo-system" to a board seat in NOVO A/S, the controlling shareholder of Novo Nordisk A/S, a subsidiary of the NOVO Foundation, NOVO A/S also having controlling positions in Novozymes A/S and NNIT A/S, both companies spun off from Novo Nordisk A/S because they can't produce same ROIC as Novo Nordisk A/S core diabetes business, but still good companies.

 

Personally I expect Lars Rebien Sørensen to take a board seat at Novo Nordisk A/S at the annual shareholder meeting next spring, based on his new position in NOVO A/S. And I will be surprised if he is not the person to be chairman of the board at Novo Nordisk A/S after Göran Aldo when he retires. I expect him still to have a lot to say going forward, but not any longer in a role as the daily operator.

[nsa122]

Am I the only one who sees some similarities between Gilead and Novo?  They both have a niche where they are pretty dominant and make incremental improvements.  It seems like maybe it is a lower risk model than aiming for giant blockbusters with patent cliffs, but who knows.  Anyone care to comment on why they prefer Novo over Gilead?

[giofranchi]

I have a totally different view of the changes in the management team at Novo Nordisk A/S announced today. This management change at Novo Nordisk A/S I actually consider some kind of promotion of Lars Rebien Sørensen, because he is moving up in the "Novo-system" to a board seat in NOVO A/S, the controlling shareholder of Novo Nordisk A/S, a subsidiary of the NOVO Foundation, NOVO A/S also having controlling positions in Novozymes A/S and NNIT A/S, both companies spun off from Novo Nordisk A/S because they can't produce same ROIC as Novo Nordisk A/S core diabetes business, but still good companies.

 

Personally I expect Lars Rebien Sørensen to take a board seat at Novo Nordisk A/S at the annual shareholder meeting next spring, based on his new position in NOVO A/S. And I will be surprised if he is not the person to be chairman of the board at Novo Nordisk A/S after Göran Aldo when he retires. I expect him still to have a lot to say going forward, but not any longer in a role as the daily operator.

 

Thank you very much, John! A very interesting perspective, and one I had not thought about... You clearly know NVO much better than I do!

 

This being said, I think I'll stick with my decision for now: I like the pharma and biotech sector a lot, and I believe it has a bright future for decades to come. So, I am very long term oriented here. But I am more comfortable with a diversified index of biotech companies (IBB), and with big pharma companies which are themselves very diversified (JNJ, PFE). To have the conviction to make NVO a meaningful position in my portfolio is much more difficult.

 

Probably, it is a decision I have gradually reached in the last few weeks while I was reading about NVO... And yesterday piece of news was just what prompted me to pull the trigger... Even if in itself it was no event at all, or, as you have eloquently explained, even possibly a positive development!

 

Cheers,

 

Gio

[AccentricInv]

Does anyone know where the inside ownership of management and/or the board is disclosed in their filings?  These international company filings always confusing...

[kab60]

It should be in the annual report. But it is not significant. The majority shareholder is a foundation.

[AccentricInv]

Yeah, I found the attached in the 20-F but wasn't sure if it was accurate.  0.06% of the Class B shares seemed like a tiny amount, so I didn't know if they owned another part of the corp structure, or had substantial options or something, like ownership in Novo A/S that wouldn't part of this 6bps. 

 

But I guess it's still $52M, which is decent for non-founder management...

 

[kab60]

But that includes the now departing CEO. Anyway, Novo has a very strong company culture (a lot of the "old" employees have become millionaires) and it's run for the long term. There's very little turnover in staff. But it's probably also a place that could live with some cost cutting. They're known for very generous pay and perks.

[AccentricInv]

Got it. As you can tell, I'm still new to the story and just began the research process. Thank you for the insights.

[John Hjorth]

Novo Nordisk announces plans to reduce workforce by approximately 1,000 employees.

 

 

Exactly as per post by kab60:

 

 

..."However, we have concluded that it [the layoffs, John] is needed in order for us to have a sustainable balance between income and costs. In the current situation, we have to prioritise investments in key product launches that will bring innovation to patients and drive our future growth."

[kab60]

It's pretty much a non-event. As an investor I'd actually be a bit disappointed since it's only 2,3 pct. of the global workforce being cut. I think investors need to ask themselves; will pricing pressure continue/increase? Is diabetes drugs becoming a commodity (what happens when Basaglar comes to market?)? My job doesn't allow me to invest in Novo, but I actually think it looks pretty interesting around here.

 

One just has to have in mind that a lot of the growth has come from increasing prices in the US. Sure, they have volume growth as well and there's pretty much a global diabetes epidemic raging, but their crazy results in the last 15 years have to a big degree come from increasing prices in the US - a market dominated by two players (now there's three). Their drugs might be better than that of Sanofi and Eli Lilly, but not necessarily so much better as to demand a big premium. That being said, compared to other pharma companies, I think Novo is also interesting because generics aren't that much cheaper than the real stuff. So it's not necessarily like the price of Sanofis Lantus falls off a cliff when Eli Lilly launches Basaglar. Just don't expect them to increase operating earnings 17 pct. per year like they did in the last 15 years.

 

It trades at a FY15 P/E around 20 or an earnings yield of 5 pct. Add in low mid/high single digit growth, and it's easy to see a +10 pct. return going forward (and unlike a lot of other stuff their earnings is real cash).

[John Hjorth]

It's pretty much a non-event. As an investor I'd actually be a bit disappointed since it's only 2,3 pct. of the global workforce being cut. I think investors need to ask themselves; will pricing pressure continue/increase? Is diabetes drugs becoming a commodity (what happens when Basaglar comes to market?)? My job doesn't allow me to invest in Novo, but I actually think it looks pretty interesting around here.

 

One just has to have in mind that a lot of the growth has come from increasing prices in the US. Sure, they have volume growth as well and there's pretty much a global diabetes epidemic raging, but their crazy results in the last 15 years have to a big degree come from increasing prices in the US - a market dominated by two players (now there's three). Their drugs might be better than that of Sanofi and Eli Lilly, but not necessarily so much better as to demand a big premium. That being said, compared to other pharma companies, I think Novo is also interesting because generics aren't that much cheaper than the real stuff. So it's not necessarily like the price of Sanofis Lantus falls off a cliff when Eli Lilly launches Basaglar. Just don't expect them to increase operating earnings 17 pct. per year like they did in the last 15 years.

 

It trades at a FY15 P/E around 20 or an earnings yield of 5 pct. Add in low mid/high single digit growth, and it's easy to see a +10 pct. return going forward (and unlike a lot of other stuff their earnings is real cash).

 

Yes, the disclosed intended staff reduction at that time was basically a non-event. Personally, I expect more - much more - similar management actions - in the short term - going forward.

 

I expect R&D to be cut materially in the short term going forward, with a focus of ressources on projects with a high degree of completion in the current pipeline, all other things being cut or intentionally pushed forward, meaning among other things more layoffs, when the business plan for 2017 and onwards is in place. Same for G&A cost.

 

Personally, I expect a lot of volatility in this stock going forward in the short term, related to the US presidential election. It's about who will have power in each chamber. If the power ends up at each separate party in the two chambers, the ability to block both the president to come and the other chamber will still exist, and there - most likely - won't be a "free run" [meaning: a run for lowering drug prices without political resistance] for Ms. Clinton on lowering drug prices.

 

I'm not trying to express some kind of political orientation, just trying to make a business & investment judgement on a political situation here. [by the way, an investment situation, which I really hate to be in, and try to shy all the time].

 

I'm considering to add materially to this position [from ~15% to eventually ~20%], if things plays out the way I want them to for this investment, but have not decided in detail on it right now. I will have about a couple of weeks to do so.

 

kab60, it would be much appreciated, if you wouldn't mind to share with your fellow board members an elaboration [your job, I understand] why you are not allowed to invest in this stock. Your posts about NVO are much appreciated.

[John Hjorth]

2016Q3 will be out tomorrow morning, my local time [Denmark]. I expect trade to be wild just after market opening [as at last quarters reporting], involving day traders, shorts, longs and lemmings and foreign investors.

 

[Re: lemmings here: This is a "Mr. & Mrs. Jones"-stock here in Denmark].

 

It closed at DKK DKK279.20/share in Copenhagen today. I have placed orders in the market this evening at DKK250.00/DKK245.00/DKK240.00 to defend a 15% position.

 

 

 

[DooDiligence]

2016Q3 will be out tomorrow morning, my local time [Denmark]. I expect trade to be wild just after market opening [as at last quarters reporting], involving day traders, shorts, longs and lemmings and foreign investors.

 

[Re: lemmings here: This is a "Mr. & Mrs. Jones"-stock here in Denmark].

 

It closed at DKK DKK279.20/share in Copenhagen today. I have placed orders in the market this evening at DKK250.00/DKK245.00/DKK240.00 to defend a 15% position.

 

Novo is one of 2 purchases I've made this year (got a third of what I'd like at $40ish USD.)

 

I've had it on a watch list since before the last split & should have bought it then (better late than never...)

 

I'd love to get another 1/3 position in the mid $30's (I plan on holding for a long time...)

[rkluwer]

Very bad report this morning fra NOVO.

 

The are adjusting there long term growth from 10% to 5% :/  and cancelling future work on an oral insulin drug - which could have been the first of it kind, down the road and major cash cow, if the would have succeeded.

 

http://www.novonordisk.com/media/news-details.2052368.html

 

The a cost cutting a lot and see a much darker future for there insulin biz then before the report. This is in line with what we have seen from sanofi about declining prices and sales in the diabetes industri, but NOVO have taken some time to see this and reflect this in there reports.

 

I wouldn't be supriced if we see this down 5-10% during the day. This is a massive stock for every dane (its been a safe-heaven stock for many years for the avg joe), and the will panic trade this. Also one of the big holdings for most pension funds in Denmark.

 

 

[Spekulatius]

Very bad report this morning fra NOVO.

 

The are adjusting there long term growth from 10% to 5% :/  and cancelling future work on an oral insulin drug - which could have been the first of it kind, down the road and major cash cow, if the would have succeeded.

 

http://www.novonordisk.com/media/news-details.2052368.html

 

The a cost cutting a lot and see a much darker future for there insulin biz then before the report. This is in line with what we have seen from sanofi about declining prices and sales in the diabetes industri, but NOVO have taken some time to see this and reflect this in there reports.

 

I wouldn't be supriced if we see this down 5-10% during the day. This is a massive stock for every dane (its been a safe-heaven stock for many years for the avg joe), and the will panic trade this. Also one of the big holdings for most pension funds in Denmark.

 

Looks like the stock is worth 15x earnings, tops. I am not sure the string of downwards revisions stops here either. They probably can do much more cost cutting, to keep profit margins up.

[rkluwer]

even worse, the downgraded 3 quarters ago and now the do it again.

 

People have always trusted in NOVO and that the could always trust in them..... this believe and trust is gonna be weakened a lot and gonna cost them down the road - massive sale. Down more then 10% in pre-market!

[Picasso]

Why am I not surprised...

[DooDiligence]

Just listened to the Brandgaard interview & liked his comments.

 

Realigning R&D to outcomes as payers prefer that over convenience.

 

Emerging market focus.

 

Says he'd prefer buying molecules over whole businesses & keeping the balance sheet clear for spending on organic growth.

 

The guy seems rational & wasn't cheerleading for the company.

 

I'm not pumping & am well aware of the fact that elimination from major US formularies is a big problem & although he made no comment; I trust that negotiations haven't completely broken down.

 

Just my amateur take (feel free to talk some sense into me...)

 

(Picasso I've read a lot of your posts over the years. Is your lack of surprise due to something that hasn't already been brought up on this thread?)