Novo Nordisk September 2024 recap

September, the month that many investors fear. As you might know, the average performance of stocks during September has historically been negative (see figure 1). In 2024, with one day to go, Novo Nordisk stock price has decreased ↓14.3% while the SP500 has reported positive return. How can it be possible?

September has been frenetic for the Danish company, with news and events coming up almost every week. I don’t usually dedicate articles to refute every single new coming up. Although I think considering all the information arising this month it was worth the effort. Hence in today’s article I will summarize the most remarkable ones.

Ozempic price cuts due to Medicare pricing negotiations

During September, Bloomberg reported Novo Nordisk diabetes drug Ozempic is expected to face U.S. government price negotiations under Medicare in 2027, as part of the Inflation Reduction Act’s price-cutting measures. A company executive noted that Ozempic, which is also popular for weight loss, is "very likely" to be included in the next round of Medicare price reductions. This could potentially save Medicare billions, with a 40% price reduction speculated. Share price decreased ↓3.7% on the day.

My take: It is true a 40% net price cut might seem worrisome. However, there are few considerations:

1. The USA government’s ambition is 40-76% net price cut in selected mass market drugs. Negotiations with pharmaceutical companies will likely reduce the price cut impact.

2. Novo Nordisk management repeats in every earnings call that price pressure on their drugs will continue and that their focus is on growing volumes and improving operational efficiency.

3. Price cuts will be applicable from 2027. There is a large likelihood cagrisema will be released by that time and the growth engine has remarkably shifted away from Ozempic.

JP Morgan lowers expectations on Wegovy Q3 2024 sales

Novo Nordisk's stock fell about ↓4.6% following a JP Morgan analysis predicting a weaker third quarter due to lower-than-expected sales of its flagship weight-loss drug, Wegovy. JP Morgan estimates the company will miss forecasts by 5%, with Wegovy sales potentially falling 9% below consensus expectations.

It is believed that supply restrictions are causing slower ramp-ups than forecasted.

My take: One quarter is not changing the long-term bullish thesis. Additionally, Novo Nordisk is building new factories and expanding its current ones. These are highly complex engineering projects which is normal that the can be delayed some quarters with respect to their initial schedule.

Monlunabant (INV-202) Clinical Phase 2a results

Novo Nordisk announced the results from a phase 2a clinical trial of monlunabant (INV-202), an oral cannabinoid receptor 1 (CB1) inverse agonist, targeting weight loss in people with obesity and metabolic syndrome (MAFLD/MASH).

Over 16 weeks, participants taking monlunabant (10 mg daily) experienced a significant average weight loss of 7.1 kg (6.5% weight loss), compared to just 0.7 kg for the placebo group. Higher doses did not lead to much additional weight loss. The most common side effects were mild to moderate gastrointestinal issues and neuropsychiatric symptoms, such as anxiety and sleep disturbances, which were dose-dependent. No serious side effects were reported.

Share price decreased ↓5.5% in the day due to the disappointing results. Novo Nordisk announced back in March 2024 during its capital markets day that the drug could achieve 15% weight loss. Despite the disappointing results Novo Nordisk plans to initiate a phase 2b trial in 2025 to further assess dosing and long-term safety.

My take: Phase 2a trials are short (approximately 3-4 months duration) exploratory trials to test drug efficacy. In Phase 2b trials, drug dosage and safety profile will be tested during 1 year. Hence, weight loss reported efficacy will be higher than reported in Phase 2b trials due to the longer time patients will stick to the treatment. It could be then possible to reach 15% weight loss reported during last capital markets day.

However, I think the biggest challenge will be to show a safe drug profile. In the 2000s, Acomplia (rimonabant) from Sanofi-Aventis, was withdrawn in the EU due to serious psychiatric side effects. Acomplia’s target was also the CB1 cannabinoid receptor to promote weight loss. Given the reported side effects in INV-202 trials, I think it is reasonable to expect that history might repeat.

Overall, INV-202 is not accounted for in my models so I consider it a positive optionality which can materialize and generate some good free cash flow. However, if the monlunabant ends up being a failure, I will start questioning Novo Nordisk’s ability to add value for shareholders through acquisitions because it will be the 2^nd unsuccessful acquired drug (back in June 2024 Novo Nordisk discontinued ocedurenone for hypertension which was acquired in 2023 from KBP Biosciences for $ 1.3 billion).

Lars Fruergaard (NN CEO) USA Senate hearing

On September 24, 2024, Novo Nordisk CEO Lars Jorgensen testified before the U.S. Senate Health Committee (chaired by Senator Bernie Sanders) regarding high drug prices for Ozempic and Wegovy.

Jorgensen argued that Novo Nordisk's pricing is influenced by the complexity of the U.S. healthcare system, which forces the company to negotiate prices with pharmacy benefit managers (PBMs). These PBMs act as middlemen between pharmaceutical companies and health plans, and have significant power to decide which drugs are covered and how much patients pay.

On the risk of oversimplifying, here are 4 main takeaways from the 2 hours and 15 minutes long hearing (link to the complete hearing here):

1. The high list prices of medicines.

   Sanders argued that Novo Nordisk charges Americans significantly higher prices for Ozempic and Wegovy than citizens of other countries because the United States does not negotiate drug prices.

2. The role of PBMs.

   Jorgensen argued that PBMs are to blame for high drug costs because they benefit from high list prices. He claimed that Novo Nordisk pays PBMs 74% of every dollar it earns from Ozempic and Wegovy. This reimbursement structure incentivizes PBMs to favor drugs with higher list prices.

3. The impact of refunds.

   Jorgensen noted that Novo Nordisk has reduced the net price of Ozempic by 40% since its launch and that 80% of Americans with insurance have access to Ozempic for $25 or less per month. However, Sanders argued that these lower net prices don't tell the whole story because many Americans pay high insurance premiums to cover the cost of medications.

4. PBM Commitments.

   Sanders stated that he had received written commitments from the three major PBMs that they would not limit coverage of Ozempic and Wegovy if Novo Nordisk substantially reduced its list prices, and invited Jorgensen to meet with the committee and the PBMs to negotiate lower prices. Jorgensen agreed to participate in these discussions.

My take: Democrats are using GLP-1 as a weapon for the coming 2024 United States Presidential Election. The USA is the only country with such an outrageous Ozempic and Wegovy pricing so it is clear there is something in the drug distribution. Scrutinizing PBMs activity or changing the distribution system will very likely report less votes than blaming the evil Big Pharma lobby. Let’s see what happens after the U.S. Presidential Election.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

As you can see September has been full of news which remarkably impacted the share price. However, if you dig deeper than the catchy headlines you can see most of them are short term noise or incomplete information impacting the stock price.

Hope you enjoyed this content in a different format to what I am used to writing. If so, please leave a comment, give it a like and share!

If you would like to receive new posts and support this type of content… do not hesitate, subscribe!