Vontobel Conviction Equities Boutique

Driving social impact by defeating diabetes

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Diabetes is on the rise across the globe placing high strains on health care systems worldwide and weighing heavily on the wellbeing of entire societies. The global health care company Novo Nordisk A/S has taken on the mission of defeating the disease by providing innovative solutions to increase prevention, accessibility, and affordability of effective medication. In our view, Novo Nordisk is a powerful social impact play for investors who are interested in investing in efforts to advance the UN SDGs in the areas of good health and wellbeing.

Today, 537 million adults suffer from diabetes and this figure is expected to increase to 783 million by 2045. While patients with diabetes type-1 require insulin to survive, those with diabetes type-2 do so primarily at a later stage of the disease and account for about 90% of total cases. As a result, the global health expenditures for adults are exorbitant having risen by 316% over the last 15 years, totaling USD 966 billion in 2021. This includes costs borne by the public and private sectors as well as out of pocket expenses by individuals. According to the International Diabetes Federation (IDF), these expenditures are anticipated to pass the one-trillion-dollar mark by 2030 and are currently led by the United States, China and Brazil.

The uneven availability and affordability of diabetes medication across the globe compounds the issue causing financial hardship and physical suffering for many. Whereas 80% of high-income countries did not face any supply disruptions in diabetes medication in 2021, the same was true for less than 15% of low-income countries. Therefore, it is no surprise that, according to the IDF, low-income countries account for most of the 6.7 million reported deaths from diabetes or its complications in 2021. They face weaker and inefficient health care systems, poor education, frail infrastructure inhibiting the distribution of medication and limited access to high-quality and cheaper generic medicines.

Novo Nordisk A/S has been committed to affordable treatment and prevention of diabetes

Denmark-based Novo Nordisk has a market share of almost 30% in the treatment of diabetes and strives to provide innovative solutions and make them accessible and affordable to millions of people worldwide. In 2020 alone, it reached 32.8 million patients, an equivalent of about 7% of all affected, with its insulin and non-insulin medication. Moreover, the company recognizes the challenge of making diabetes medication more affordable and introduced its “My$99 Insulin Program” which allows eligible customers to buy a 30-day drug supply for $99 instead of $434 for a listed 3-vial equivalent in the US. In addition, the unbranded versions of some of its insulin medications are available at a 50% price discount compared to branded versions of the same drug. Last but not least, Novo Nordisk has lowered the ceiling price from 4 to 3 US dollars per human vial in 76 countries reaching 3.2 million people in the least developed countries.

Attractive fundamentals for investors

Aside from its strong social impact, the company participates in a growing market with currently few competitors. The largest chunk (80%) of the company’s USD 16 billion revenues (9M2021) stems from its diabetes products while the rest is linked to anti-obesity solutions and treatments for rare blood and endocrine disorders.

Among the most important growth drivers for the company are their non-insulin GLP-1 products which are used in combination with diet and exercise to help treat type-2 diabetes. These types of products offer minimally intrusive treatments to patients and represent a growing market as patients value options that have less impact on their daily lives and routines. In addition, GLP-1s can be provided, under certain conditions, prior to an insulin prescription with the benefit of more efficient blood sugar reduction and lower hypoglycemia risk. Novo Nordisk's innovative solutions in this area have proven highly successful prompting profit guidance hikes by the company in 2021. Its products include Victoza®, a once-daily injection, Ozempic®, a once-weekly injection and Rybelsus®, the first commercially available tablet-based GLP-1 medication taken once daily. In fact, the company's GLP-1s are currently growing much faster than long-term-treatment insulin products (24% vs. -2% at 9M2021) representing 36% of sales and driven by higher pricing. For example, in October 2021, Novo Nordisk increased its sales and EBIT outlook due to Ozempic® making big strides in the US GLP-1 market. Its development will be crucial for the company’s future trajectory.

Another important growth driver for Novo Nordisk is its new anti-obesity drug Wegovy that compared to a previous version - Saxenda - has a higher efficacy in weight reduction. Clinical trials revealed that with Wegovy patients were able to reduce their body weight by 17% vs 6% previously. As 85% of diabetes type-2 cases start with obesity, Wegovy can prevent the disease from developing or slow its progression. The drug represents the fastest launch in the company’s history and is expected to show the highest growth rate among its products despite some unexpected delivery delays at the company’s contract manufacturing organization (CMO) at the end of 2020.  Since its launch in June 2021, the demand for the product has exceeded initial expectations and it is reasonable to assume strong growth prospects in the future.

Over the past years, the company has been able to increase gross margins thanks to the introduction of innovative insulin and GLP-1 products while also keeping capital expenditures under control. We believe, this has led to significant shareholder value creation via sizable free cash flow generation that was used for share buybacks and dividend payouts. Going forward, we think that Novo Nordisk can offer potential for strong EBIT growth thanks to its product offering and financial discipline. However, the growing need for antidiabetic treatment is attracting competition, which means that the company will need to keep abreast on innovation to fend off peers and maintain or increase its market share in the future. In addition, US drug pricing regulations and potential reimbursement cuts by European health care providers are elements to keep an eye on as they could impact the company’s profitability. Overall, we believe that given its track record and R&D investments Novo Nordisk should continue to develop novel products and expand into new areas driving the company’s profitability and social impact.





Any investments discussed are for illustrative purposes only and there is no assurance that Vontobel will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.

Certain of the information contained in this article is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Vontobel believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
The views and opinions herein are those of the individuals mentioned above and do not reflect the opinions of Vontobel Asset Management or Vontobel Group as a whole. The views may change at any time and without notice. This document is for information purposes only and does not constitute an offer, solicitation or recommendation to buy or sell any investment instruments, to effect any transactions or to conclude any legal act of any kind whatsoever.

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